EPAM Systems, Inc. (EPAM) in Newtown, Pennsylvania, provides digital platform engineering and software development services worldwide. The company recently released a strong first-quarter earnings report in which its revenue and non-GAAP EPS beat Street’s estimates by 13.6% and 31.7%, respectively.
However, EPAM is expected to be impacted by unfavorable exchange rates in the next quarter.
The stock is down 24.8% over the past three months and 52.9% year-to-date to close yesterday’s trading session at $314.66. Additionally, it is currently trading 56.6% below its 52-week high of $725.40, which it reached on November 5, 2021, due to potential business disruption caused by the invasion of Ukraine by Russia, where many of its employees are based. Thus, EPAM’s short-term prospects appear uncertain.
Here is what could influence EPAM’s performance in the coming months:
EPAM’s revenue jumped 50.1% year-over-year to $1.17 billion for its first fiscal quarter ended March 31, 2022. In addition, its non-compliant operating income GAAP increased 37.8% year over year to $188.70 million. The company’s non-GAAP net income was $147.04 million, representing a 38.5% year-over-year increase. Additionally, its non-GAAP EPS was $2.49, up 37.6% year-over-year.
In terms of gross profit margin over the last 12 months, EPAM’s 33.83% is 32.7% below the industry average of 50.29%. Likewise, its 8.91% 12-month leveraged FCF margin is below the industry average of 9.13%.
In terms of forward non-GAAP P/E, EPAM’s 36.85x is 101.8% above the industry average of 18.26x. Additionally, its forward EV/EBITDA of 23.21x is 92.5% above the industry average of 12.05x. Additionally, the stock’s respective forward P/B and EV/EBIT of 6.36x and 26.66x are above the industry averages of 3.86x and 15.61x.
Unfavorable analyst estimates
Analysts expect EPAM’s EPS to decline 16.6% in the current quarter, 17.4% in the next quarter and 5.2% in the current year.
POWR ratings don’t indicate enough advantage
EPAM has an overall rating of C, which equates to a neutral in our POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. EPAM has a D rating for Value, in line with its above-industry valuation ratios.
The stock has a D rating for stability, which is consistent with its 1.78 beta.
EPAM is ranked #49 out of 81 C-rated stocks Technology – Services industry.
Click here to access EPAM’s ratings for growth, momentum, sentiment and quality.
EPAM may continue to retreat in the short term due to concerns about operational challenges caused by Russia’s invasion of Ukraine. Thus, we think the stock looks overvalued at the current price level, and it might be wise to wait for a better entry point into the action.
How does EPAM Systems (EPAM) compare to its peers?
Although EPAM has an overall POWR rating of C, one might consider investing in the following technology and services stocks with an A (Strong Buy) rating: Fujitsu Limited (FJTSY), computer working group, incorporated (CTM) and Celestica, Inc. (CLS).
EPAM stock was trading Tuesday morning at $303.78 per share, down $10.88 (-3.46%). Year-to-date, the EPAM is down -54.55%, compared to a -17.94% rise in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
At Nimesh Jaiswal a fervent interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving the price of a stock is the key approach he follows while advising investors in his articles. After…