EPAM Systems Inc (EPAM, Financial) has recently experienced a daily decrease of 1.65% in its stock price, yet it boasts a 3-month gain of 12.38%. With an Earnings Per Share (EPS) of $8.02, investors are contemplating whether the stock is modestly undervalued. This article aims to explore EPAM Systems' valuation, encouraging readers to delve into the following detailed analysis to uncover the stock's true market potential.
Company Overview
EPAM Systems Inc (EPAM, Financial) is a leading global IT services provider, specializing in platform engineering, software development, and consulting services. With North America accounting for roughly 60% of its revenue, EPAM Systems is at the forefront of integrating new technologies such as artificial intelligence, virtual reality, and robotics into its offerings. The company's current stock price stands at $295.4 per share, while the GF Value estimates its fair value at $406.18, hinting at a modest undervaluation. This valuation discrepancy sets the stage for a deeper investigation into EPAM Systems' financial health and market positioning.
Understanding the GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor reflecting past performance and growth, and projected future business outcomes. If a stock's price greatly exceeds the GF Value Line, it may be overvalued, leading to potentially lower future returns. Conversely, a price well below the GF Value Line could indicate an undervalued stock with the prospect of higher returns. For EPAM Systems, the current price suggests a modest undervaluation, which could signal more favorable long-term returns than the company's business growth alone might indicate.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. EPAM Systems' cash-to-debt ratio of 11.1 places it above 69.09% of its peers in the Software industry. This solid financial foundation earns EPAM Systems a financial strength rating of 8 out of 10 from GuruFocus, indicating a strong balance sheet.
Profitability and Growth
Profitable companies, particularly those with consistent long-term profitability, pose less investment risk. EPAM Systems has maintained profitability for the past decade, with a trailing twelve-month revenue of $4.80 billion and an operating margin of 12.07%, outperforming 77.5% of companies in the Software industry. GuruFocus ranks EPAM Systems' profitability at a perfect 10 out of 10.
Additionally, growth is a pivotal valuation factor, often linked to a company's long-term stock performance. EPAM Systems' 3-year average revenue growth rate surpasses 82.1% of its competitors, while its EBITDA growth rate of 19.8% is higher than 67.13% of similar companies, indicating a robust growth trajectory.
ROIC vs. WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is another measure of profitability. EPAM Systems' ROIC of 21.8 is significantly higher than its WACC of 14.23, indicating that the company is effectively creating shareholder value.
Conclusion
EPAM Systems (EPAM, Financial) presents itself as modestly undervalued, backed by strong financial health and impressive profitability. Its growth outpaces a significant portion of the Software industry, suggesting potential for above-average returns. For a comprehensive understanding of EPAM Systems' financial journey, interested parties are encouraged to examine its 30-Year Financials here.
Discover High-Quality Investment Opportunities
To uncover high-quality companies that may deliver above-average returns, visit the GuruFocus High Quality Low Capex Screener.
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.
