Why Infosys Shares Soared

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 (NYSE: INFY  ) surged 20% today, after its quarterly results and guidance topped Wall Street expectations.

So what: Infosys shares have slid since October on concerns over a slowdown in tech outsource spending, but today's third-quarter beat -- EPS of $0.76 on revenue of $1.91 billion versus the consensus of $0.72 and $1.85 billion -- coupled with upbeat full-year guidance, eases some of those worries. Unfortunately, the tough pricing environment continues to weigh heavily on the company's margins -- third-quarter operating margin declined 531 basis points, to 25.7% -- preventing a few Wall Street firms from getting too bullish on the stock.

Now what: Management now sees full-year EPS of $2.97 and revenue of at least $7.45 billion, also ahead of the average estimate of $2.95 and $7.32 billion. According to a statement by CEO S. D. Shibulal: 

We continue to gain confidence from a strong pipeline of large deals. However, the broader economic environment remains difficult. Even so, we remain cautiously optimistic about the January-March quarter.

With the stock now flirting with its 52-week high, and trading at a forward P/E near 20, however, I'd wait for some of today's excitement to fade before buying into that optimism.

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

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