What happened
Shares of EPAM Systems (EPAM +2.13%) fell 12.4% in June, according to data from S&P Global Market Intelligence. The plunge flew in the face of a bullish trend for the stock market overall, as the S&P 500 index gained 6.5% over the same period. Chiefly, the software engineering specialist's investors were uncomfortable with the company's guidance update in the first week of last month.
So what
EPAM's management issued a guidance update on June 5, lowering expectations across the board. Full-year revenue is now projected to shrink by roughly 2% year over year, replacing an original growth target of approximately 3%. Its adjusted operating margin was lowered by 50 basis points, lowering the midpoint of the full-year guidance range from 12.5% to 12%. Adjusted full-year earnings are now targeted at $10 per share, down from $10.70 per share.
The guidance ranges for the in-progress second quarter took even deeper cuts, except a stable forecast for operating margins.
Management pinned these bearish updates on increasingly cautious spending patterns in the global IT services market. Hampered by tighter budgets, EPAM's customers are slowing down their digital transformation projects and even canceling some planned software projects.
So the company takes a more conservative view of its near-term business prospects under these uncertain market conditions. Investors hate uncertainty, generally speaking. Therefore, market makers gave EPAM's high-priced stock a buzz cut. EPAM's stock closed 21.7% closer that day.
NYSE: EPAM
Key Data Points
Now what
All things considered, the puts and takes in EPAM's recent stock chart have kept its share prices at a pretty reasonable level. Right now, the stock trades at the perfectly reasonable valuation ratios of 25 times free cash flow and 21 times forward earnings.
So EPAM doesn't look like a no-brainer bargain buy, but it isn't overpriced either. And if this software interests you at the threshold of a potentially game-changing rush into the artificial intelligence market -- where EPAM is a leading provider of development services -- this could be a good time to take a modest nibble at a reasonable price. After all, every market storm is eventually followed by sunnier skies. EPAM should be ready to capitalize on a healthier market when the thunderclouds finally disperse.
