Why Infosys Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Indian IT services specialist Infosys (Nasdaq: INFY  ) plunged 10% today after its full-year forecast disappointed Wall Street.

So what: Infosys' second-quarter results -- EPS of $0.75 on revenue of $1.8 billion -- managed to meet estimates, but downbeat guidance for the full year reinforces worries over weak IT spending. In fact, management expects full-year operating margins to decline about 200 basis points from a year earlier, triggering plenty of concern over Infosys' profitability going forward.

Now what: Management now sees full-year EPS of $2.97 on revenue of $7.34 billion, versus the average analyst estimate of $3.04 and $7.37 billion, respectively. "Global economic uncertainties continue to face the industry," said CEO S. D. Shibulal. "We have increased employee wages, used some of our cash in a transformational acquisition of a consulting business and enhanced our investment in R&D and solutions. These initiatives will position us well in the industry and provide a strong platform for future growth." With the stock now off about 30% from its 52-week highs and trading at a reasonable forward P/E of 13, contrarian Fools might even want to bet on that turnaround talk.

Interested in more info on Infosys? Add it to your watchlist.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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