On October 19, 2023, WNS (Holdings) Ltd (WNS, Financial) experienced a daily loss of 17.79%, contributing to a 3-month loss of 5.16%. Despite the decline, the company's Earnings Per Share (EPS) stands at 2.67. The question arises: is the stock significantly undervalued? This article aims to answer that question by providing a detailed valuation analysis of WNS (Holdings). We invite you to delve into the financial intricacies of WNS (Holdings) and uncover its true market value.
Company Overview
WNS (Holdings) Ltd is a global provider of business process management (BPM) services. The company offers comprehensive data, voice, analytical, and business transformation services with a blended onshore, nearshore, and offshore delivery model. WNS (Holdings) operates two reportable segments: WNS Global BPM and WNS Auto Claims BPM, with the former generating most of the company's revenue. Its customer base spans from the USA to the UK, Australia, Europe, South Africa, and other parts of the world.
Despite its current stock price of $56.47, WNS (Holdings) has a GF Value, an estimation of fair value, of $98.07. This discrepancy suggests that the stock might be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from three key factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line, as seen on our summary page, provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. Based on this analysis, WNS (Holdings) stock appears to be significantly undervalued at its current price of $56.47 per share and a market cap of $2.70 billion.
Because WNS (Holdings) is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Before investing in a company, it is crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. WNS (Holdings) has a cash-to-debt ratio of 0.41, which is worse than 78.24% of 2734 companies in the Software industry. However, its overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies usually carries less risk, especially if the company has demonstrated consistent profitability over the long term. WNS (Holdings) has been profitable 10 years over the past 10 years. With an operating margin of 13.28%, it performs better than 79.04% of 2762 companies in the Software industry. Overall, GuruFocus ranks WNS (Holdings)'s profitability as strong.
Growth is a critical factor in the valuation of a company. WNS (Holdings) has a 3-year average annual revenue growth of 10.5%, which ranks better than 55.87% of 2395 companies in the Software industry. However, its 3-year average EBITDA growth rate is 5.5%, which ranks worse than 56.91% of 1991 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, WNS (Holdings)'s ROIC was 13.86 while its WACC was 11.73.
Conclusion
In conclusion, the stock of WNS (Holdings) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 56.91% of 1991 companies in the Software industry. To learn more about WNS (Holdings) stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
