With a daily gain of 10.45%, a 3-month loss of -9.53%, and an Earnings Per Share (EPS) of 9, EPAM Systems Inc (EPAM, Financial) presents a fascinating case for value investors. The question is: Is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of EPAM Systems, offering insights that could guide your investment decisions.
Company Overview
EPAM Systems Inc provides a variety of software product development and digital platform engineering services to clients globally. The company's services include Software Product Development, Custom Application Development, Application Testing, Enterprise Application Platforms, Application Maintenance, and Support, and Infrastructure Management. EPAM Systems focuses on creating innovative and scalable software solutions using industry-standard and custom-developed technology, tools, and platforms. The majority of revenue is generated from North American clients.
The company's stock is currently priced at $239.3 per share, with a market cap of $13.90 billion. This valuation is compared against the GF Value, an estimate of the stock's fair value. The GF Value of EPAM Systems is $613.87, suggesting that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
According to GuruFocus Value calculation, the stock of EPAM Systems (EPAM, Financial) appears to be significantly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given EPAM Systems' current price and market cap, the stock appears to be significantly undervalued.
Because EPAM Systems 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
Investing in companies with poor financial strength carries a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. EPAM Systems has a cash-to-debt ratio of 10.22, which is better than 65.89% of 2738 companies in the Software industry. The overall financial strength of EPAM Systems is 8 out of 10, indicating strong financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. EPAM Systems has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.80 billion and Earnings Per Share (EPS) of $9. Its operating margin is 12.72%, which ranks better than 78.27% of 2766 companies in the Software industry. Overall, the profitability of EPAM Systems is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of EPAM Systems is 27%, which ranks better than 82.27% of 2397 companies in the Software industry. The 3-year average EBITDA growth rate is 19.8%, which ranks better than 67% of 1994 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, EPAM Systems's ROIC is 24.03, and its cost of capital is 13.89.
Conclusion
In summary, the stock of EPAM Systems (EPAM, Financial) appears to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 67% of 1994 companies in the Software industry. To learn more about EPAM Systems 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.
