Company Profile:
From Yahoo Finance
Infosys Technologies Limited, a technology services company, defines, designs, and delivers information technology (IT) enabled business solutions. The company, together with its subsidiaries, provides various services, including custom application development; maintenance and production support; software reengineering; package evaluation and implementation; IT consulting; and other solutions, such as independent validation solutions, operations and business process consulting, engineering services, business process management, systems integration, and infrastructure management services.
Market capitalization is $27.25B. :)
Fundamental Analysis:
Let’s cut to the chase and check out the Big Five.
Return on invested capital has been fantastic. Since 1999, the ROIC has been over 28% each and every year. The 5 year average ROIC is 31%. Management has definitely done a fantastic job achieving this type of return.
And the return on equity confirms the ROIC with a solid, consistent ROE. The 10 year average ROE is 31.85% and the 5 year ROE is slightly lower at 30.75%. Excellent, consistent return.
Equity growth rate has been absolutely tremendous! The 9 year rate is 50.70%! The 5 year rate drops to 41.95%. The 3 year rate further slips to 39.07% and last year’s rate held steady at 42.68%. Although the trend seems downward, the equity growth rate in 1999 of 230% definitely skews the numbers. All in all, amazing equity growth over this time period.
Earnings per share growth rate has been on par with the equity growth rates. The 9 year rate is 53.77%. The 5 year rate drops to 37.99%. The 3 year rate picks up to 42.16% and last year’s rate was 50.75%. These numbers are almost mind boggling.
Sales growth rates have been in the same league as the rest of the growth rates with the 9 year rate at 51%. The 5 year rate comes in at 42.26% and last year’s rate stays steady at 43.59%.
Cash flow growth rates show the same magnitude of growth rates. The 9 year rate is 51.02%. The 5 year rate is 36.36% and last year’s rate was 42.21%.
These are some incredibly explosive growth rates and is eerily similar to the analysis performed on Cognizant Technology Company (in the same line of business as well).
Stock Analysis:
To calculate a sticker price, we need to determine a future P/E and a future EPS growth rate.
I can see that the current P/E is at historical lows compared to its 10 year average P/E and the 5 year average. So I will use the current P/E of 29.09 as my future P/E.
For my future EPS growth rate, I usually choose the most conservative equity growth rate from the 9 year and 5 year rates. In this case, the 5 year rate is most conservative at a whopping 41.95%! That is quite the future growth rate. Now, the analysts have tempered this forecast with their own forecast of 25%. I will use their more conservative forecast.
With this information, the sticker price works out to $109.83. At the current price of $47.71, that implies a discount of 56.56%! Could it be? We are actually in target of the MOS price? The MOS price works out to $54.92 (or 50 cents on the dollar from the sticker price). That means that a discount of 13.12% currently exists to the MOS price!
See my Rule #1 stock analysis of INFY.
Conclusion:
From a strict Rule #1 investor point of view, this stock may not be a Rule #1 stock. After all, most of the growth rates have not trended higher. In fact, they have declined from the highs posted earlier in the decade.
However, those initial growth rates definitely skew the numbers for the long term. So I would argue that this is a Rule #1 stock as management has been able to consistently deliver fantastic performance.
This analysis looks just like the one performed for Cognizant Technology Company. And it has the same issues. Is that growth rate sustainable? It definitely has been in the past. Issues such as rupee versus the US dollar; labour shortage in India; salary hikes in India; attrition; and competition must be considered.
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