Infosys experienced a 9% increase in sales in its most recent quarter compared to the same period in the previous fiscal year, but earnings were actually down and so we’d say conservative expectations are warranted there. The opposite is the case at Wipro: net income has come in higher, but with revenue slipping we’d expect that future earnings growth may not be sustainable. Each of these stocks is down in the last year against a rising market.
We can also compare Cognizant to Oracle Corporation (NASDAQ:ORCL) and International Business Machines Corp. (NYSE:IBM), which are certainly larger companies but are also major players in enterprise software and services. Oracle’s recent financial performance has been essentially flat on both top and bottom lines. Analysts are still expecting significant increases in earnings per share, as shown by the fact that the stock’s trailing and forward P/E multiples are 16 and 12 respectively. While to some degree the company could increase EPS through buybacks, we’d still avoid it for now. The first quarter of 2013 saw both IBM’s revenue and earnings falling off slightly versus a year earlier. With that company roughly matching Infosys and Wipro in terms of being valued at 14 times trailing earnings, it doesn’t seem like a good buy at this time either- we’d want to be able to anticipate growth in net income at that pricing.
As a result, Cognizant actually comes out looking more interesting than any of the four stocks in its peer group we’ve discussed, based purely on quantitative measurements of valuation and recent performance, and the insider purchase is a positive sign as well. We’d be interested in doing more research on the company, particularly in terms of how it has outperformed these other companies and how sustainable its advantages are.
Disclosure: I own no shares of any stocks mentioned in this article.