INTRODUCTION
STOCK STUDY WORKSHOP
RALPH SEGER, CFA
I Chose Infosys Technologies Limited (INFY) for several reasons:
- Growth of sales, pre tax profits and EPS of more than 20% per year
- A reasonable P/E ratio in view of my judgment as to an appropriate P/E ratio
- A 30% pre tax profit suggesting ample cash flow to fund future growth.
- A 30% earned on equity capital and no long-term debt indicating an unleveraged balance sheet that produces outstanding growth
- International home in India providing International diversification opportunity for a portfolio. Sales of 64% in North America and 26% in Europe.
ABOUT THIS COMPANY
Value Line describes INFY as a global technologies firm through majority-owned subsidiaries in Australia, China and in India. Infosys Consulting Inc. provides solutions that leverage technology for clients across the entire software life cycle: consulting, design, development, re-engineering, maintenance, systems integration and package implementation. It also provides software products to the banking industry, as well as client business process management services. INFY has about 72.000 employees. CEO is S. Gopalakishan. Its address is Electronics City, Hosir Road, Bangalore, Kamatakas 561 229, India. Telephone (510)770-9393. Internet: www.infosys.com.
The Investor Advisory Service says that the company believes there are four major trends driving its business: 1) the emergence of developing countries creates new markets and accessible labor, 2) an aging worldwide population encourages companies to tap young and skilled labor, 3) the ongoing rapid adoption of technology changes how consumers and businesses use technology, and 4) regulation is driving greater accountability and transparency.
HOW DO THEY MAKE THEIR MONEY
The company has been in the IT services business for 25 years and will produce sales for fiscal 2007, ending in March of 2008, of 4.1 Billion dollars. According to the IAS, Gartner, a leading research firm, believes that worldwide IT outsourcing IT spending will rise from $193 billion to $260 billion by 2009. Their earnings quality is high. In order to respond to rapidly changing markets, the company seeks to match its cost to sales wherever possible, leading to excellent service margins and a growth rates slower than revenue for sales, general and administrative spending.
GENERAL DISCUSSION
There is probably a recession coming in the US and in Europe which have contributed to a decline in the price of INFY shares providing a good opportunity for long-term investors who follow the guide lines of the late George A. Nicholson, Jr. It takes a combination of a P/E ratio expansion and growth of EPS to produce a profitable investment. INFY incorporates both of these fundamentals. (The price is down from a high of 60 in 2007.) At the recent price of 39.94 the price target is 144 suggesting a total return of 30% a year over a five year period.
My SSG fily for INFY is attached to this message. Both ITK and SSG files are attached.
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