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StockCentral :: Community
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Join in on the discussion with other like-minded investors in our community forums. Learn about the fundamental investing methodology and participate in educational workshops in the Investing forums, stay up-to-date on StockCentral news and make suggestions to the StockCentral team in Central Square, and discuss your favorite stock or recent market news in our A-Z ticker-based forums.
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Ralph Seger Jr.
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| 02/26/2008 8:14 PM |
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STOCK STUDY WORK SHOP SECTION 5
INFO TECHNOLOGIES (INFY)
RALPH SEGER, CFA
HOW MUCH IS THIS STOCK WORTH? GETTING TO THE BOTTOM LINE
So far we have determined to continue with our stock study in that we have found INFY is a growth stock, well managed and we start to come to grips with whether at the current price we desire to buy, hold or sell. In order to form a judgment that we should buy the stock must jump through two hoops. The up side/down side must be 3 to 1 or greater. The forward RV based on estimated EPS 12 months in the future should be around 100 or perhaps as high as 120. This will provide an opportunity for a P/E ratio expansion from close to my judgment as to the future average to the estimate of the high. Along with EPS growth the P/E expansion will produce a higher price.
Another important metric lies in section 5. This is the calculation of estimated total return per year over the next five years. Total return is the combination of price appreciation plus dividend income. In the case of INFY the dividend portion of total return is nil. For INFY the estimated total returns over the next five years id 30%. Since it takes a total return of approximately 14.7% to double your money in five years I find the prospects of INFY to my liking.
A word of caution, In The Wall Street Journal of January 12, 2008 is an article headed “For Infosys, Finding Deals Is Slowing”. The article points out that INFY is flush with cash but “It’s hard to get everything aligned and satisfied” according to it CEO and managing director, S. Gopalakrishnan. INFY wants to buy businesses to beef up the array of services it can offer to clients and to move up the value chain by doing higher-margin consulting work. It wants to expand its geographic reach, particularly in continental Europe, reducing its dependence on dollar based revenues and widening its client base. In my mind this is a plus for INFY to diversify away from the weak dollar and strive to earn in a stronger currency. This will enhance reported EPS in dollars due to the currency transaction. |
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armin fields
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| 02/29/2008 4:19 PM |
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Ralph:
Thanks again for doing this workshop.
You wrote:
<< It wants to expand its geographic reach, particularly in continental Europe, reducing its dependence on dollar based revenues and widening its client base. In my mind this is a plus for INFY to diversify away from the weak dollar and strive to earn in a stronger currency. This will enhance reported EPS in dollars due to the currency transaction. >>
If INFY reduces its dependence on U.S. based revenues, and diversifies away from the weak dollar, why do you say that will improve EPS that is reported in U.S. dollars?
Can you elaborate further on the relationship/interplay between the Indian Rupee and the U.S. dollar.....anything at all will be a big help.
Armin
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Armin Fields
check out my SSG blog at
http://arminfields.wordpress.com |
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Ralph Seger Jr.
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| 03/02/2008 11:08 AM |
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Armin Field asks me to elaborate on how a weaker dollar contributed to a company's earning in dollars from a country with a strong currency. Let's use an example a country in Europe which has a division which operates in an area where the Euro is the currency. Formerly the Euro was traded at one or less the U.S. Dollar. Now it take 1.5 or more Euros to equal on dollar. When a company produces and sells products from which it receives 100 Euros. When 100 Euros are translated by accounting for dollars it would be 150 dollars, thus boosting reported EPS for American share holders.
Ralph Seger CFA |
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Patrick Landers
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| 03/14/2008 8:17 PM |
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From the companies most recent 6K statement, as the rupee appreciates against the dollar, their Operating margin decreases by .4%; at least that was the situation in the last quarter.
"For the three months ended December 31, 2007, every percentage point depreciation/ appreciation in the exchange rate between the Indian rupee and the U.S. dollar, has affected our operating margins by approximately 0.4%. The exchange rate between the rupee and dollar has fluctuated substantially in recent years and may continue to do so in the future. We are unable to predict the impact that future fluctuations may have on our operating margins."
It appears that the rupee appreciated by around 14% during the last quarter, meaning the OM decreased by 5.6. |
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