Why WNS Is a Solid Bet for Long-Term Growth

WNS (WNS) is an under-the-radar company based in India that specializes in outsourcing. While it's not closely followed by investors, it has delivered strong returns over its history.

In this episode of "Beat and Raise," recorded on Jan. 21, Fool contributors Jeremy Bowman and Brian Withers discuss WNS's fiscal third-quarter performance and how it's adjusting to an increase in automation around the world.

Brian Withers: WNS. I'm not sure what WNS stands for, but they are in business process outsourcing, which like if you have some back office, whether it's typically call center. But even accounting and other things. These guys manage all sorts of stuff for their customers.

Jeremy Bowman: Yeah, they have a wide range of customers and a wide range of different tasks. They even do auto claims for repairs for one of their customers. They've made a lot of acquisitions over the years and that's how they branch out into travel, insurance, retail, manufacturing. They're really serving every industry. Let me share my screen and get the slideshow.

Withers: Yeah, it's a recent rec from global partners, I think.

Bowman: Yeah, they're based in India, we should mention. But they are a global company. They're serving customers all over the world. But yeah, pretty solid report. They reported earnings yesterday morning. The stock really didn't move at all. That was down maybe a percent yesterday and recovered some of that today. This isn't a company that really gets a lot of attention. You can see it in their chart, too, they've pretty much traded in line with the S&P 500 for most of the last year, which I think is interesting or definitely when you compare it to some other tech stocks out there. They report two revenue numbers, one is GAAP revenue and then they also have revenue minus repair payments for that auto claims business they run, so they prefer to use the adjusted revenue one.

That was up 16.2, I think it was a 16.2% to $261.2 million, beating guidance. Adjusted earnings per share also up 11$ ahead of estimates at $0.83. They raised the bottom range there and they also have a funny fiscal calendar. They just finished their third quarter, so they're going into their final quarter of the year. They raised the bottom end of that guidance range from $984 million to $1.01 billion to $1.03 billion. This was the adjusted figure again, so pretty tight range. They're up about 17% from last year and they also raised their EPS. I think it was about $3.14 before, it's looking at $3.30 to $3.38, up 23%.

The company has some highlights. They have about 375 clients. This is the kind of business where you're handling expensive accounts, big money clients, right? These are pretty big outsourcing jobs that they're doing. They had 11 new clients in the quarter in 26 expansions. I think that's pretty solid for them.

Withers: Yeah, that expansions, I think is especially important as these large companies start to outsource things to a company like WNS, I imagine they're nervous about are they going to get the quality that they need, or are they getting the responsiveness that they need. Basically, they're taking jobs in the U.S. potentially, and moving them to a low-cost region. It's an experiment for a lot of companies to start to do this and so it's really cool to see the expansions and WNS winning more business from existing customers.

Bowman: Right. I also think, too, it's a kind of business where if you get started down this road of outsourcing, it's going to be hard to pull that business back.

Withers: Yeah. I can't imagine you going backwards [laughs] and un-outsourcing something.

Bowman: Yeah. It has to be going pretty wrong, I think. This is one of the bigger companies out there, I think, they have been doing this for almost 20 years. Then profitability, 21% operating margin, which also surprised me for this kind of business. They're definitely extracting a lot of value for themselves here.

Withers: OK. That's a dash, not a minus, good. [laughs]

Bowman: Yeah, sorry, that is dash. Should have used the colon there. Yeah, I think the valuation is pretty great right now, about a 25 P/E, which if you look at these growth numbers, is pretty good. No debt really on the balance sheet. The only concern they address was the risk of COVID coming back. 

Withers: Left or up, that'll get you back.

Bowman: Bumped out a little. That was a headwind for them, they have a big online travel agency customer. But based on their guidance, they're definitely not seeing any headwinds right now from omicron. I think this seems like the kind of company that is pretty much set them up and knock them down most quarters and you can count on for a steady growth.

Withers: The other interesting thing, I don't know whether I was reading it on the conference call are just on their investor website. They talked a little bit about, since they're outsourcing jobs that are somewhat mundane and repetitive, you would think like accompany like UiPath, which is doing business process automation, are they going to get overcome by tech? You know what, they're partnering with UiPath, they are a customer of UiPath and using that to incorporate and getting their business more efficient. They are very tech forward from that perspective and it isn't just a labor play.

Bowman: Yeah, that's a good point. Yeah, they're definitely using technology and automation to their advantage as well.