EPAM Systems Inc (EPAM, Financial) recently experienced a daily loss of 1.16%, yet it has seen a 3-month gain of 5.1%. With an Earnings Per Share (EPS) of 8.02, investors are prompted to consider whether this stock is significantly undervalued. This article delves into a valuation analysis to answer this pressing question and to provide a clear understanding of EPAM Systems' market position.
Company Introduction
EPAM Systems is a leading global IT services firm, focusing on software development, platform engineering, and consulting services. With North America accounting for about 60% of its revenues, EPAM Systems is at the forefront of integrating new technologies like artificial intelligence, virtual reality, and robotics into its offerings. Currently, the stock price stands at $255.47, with a market cap of $14.70 billion. This positions EPAM Systems as significantly undervalued when compared to the GF Value of $401.99, which estimates its fair market value.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, based on historical trading multiples, company performance and growth, and future business projections. If EPAM Systems' stock price is significantly below the GF Value Line, it suggests that the stock is undervalued and may promise higher future returns. Indeed, EPAM Systems' current stock price suggests that it is significantly undervalued, indicating potential for a much higher long-term return than its business growth alone might suggest.
Financial Strength
Investors must consider a company's financial strength to avoid the risk of permanent capital loss. EPAM Systems boasts a strong cash-to-debt ratio of 11.1, ranking higher than 67.74% of its peers in the Software industry. With an overall financial strength rating of 9 out of 10, EPAM Systems demonstrates a robust financial position, indicative of its capacity to weather economic shifts and maintain capital security for investors.
Profitability and Growth
Consistent profitability is a hallmark of lower risk investments, and EPAM Systems has maintained profitability for the past decade. With an annual revenue of $4.80 billion and an Earnings Per Share (EPS) of $8.02, coupled with an operating margin of 12.07%, EPAM Systems outperforms 76.14% of its competitors. The company's strong profitability, with a rank of 10 out of 10, and its impressive growth rate of 27% annually, position it well above the industry median.
ROIC vs WACC
An effective measure of a company's profitability is the comparison of its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). EPAM Systems' ROIC of 21.8 is significantly higher than its WACC of 13.64, indicating that the company is generating substantial value for its shareholders. This metric underscores EPAM Systems' effective capital allocation and its potential for long-term growth.
Conclusion
In summary, EPAM Systems is significantly undervalued, presenting an attractive opportunity for investors. The company's solid financial structure, robust profitability, and commendable growth trajectory all suggest that EPAM Systems stock may offer above-average returns. To gain a deeper insight into EPAM Systems, interested parties are encouraged to review its 30-Year Financials.
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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.
