Is now the perfect time to buy Infosys (Nasdaq: INFY)?
If you read the media reports that came out in the wake of a Q3 earnings release very early Friday, you might think now is the absolute worst time to buy Infosys. Comments by CEO S. Gopalakrishnan in the earnings conference call seemed to suggest a looming slowdown in business: "The only concern ... is how do the budgets for next year look ... Most of the budgets should have been typically completed by now, but we are seeing some customers at least delaying it to the end of the month or early part of February." The next nine pages of the earnings report transcript fairly brim with analysts musing over what could be causing the delays, and why Infosys' revenue growth appeared to be slowing down.
Analysts weren't the only people worried. Investors in general got spooked by Infosys' news -- despite the fact that the company met or beat both sales and profits estimates. Shares of Infosys dropped more than 6% in the wake of the report. Fellow IT outsourcer Cognizant (Nasdaq: CTSH) fell nearly 9%; Wipro (NYSE: WIT) was down nearly 7%; and Satyam (NYSE: SAY) dropped a bit more than 4%. But the more I look at Infosys' conference call transcript (the report itself was pretty sparse, consisting of just a few paragraphs of text, and not a cash flow statement in sight), the less worried I become. Aside from the CEO's line about tardy finalization of IT budgets among Infosys customers like Microsoft (Nasdaq: MSFT), Hewlett-Packard (NYSE: HPQ), and Arab National Bank, very little in the transcript bespeaks a slowdown.
On the contrary, Infosys:
- Landed nearly four dozen new clients.
- Boasted a 96% renewal rate on contracts with existing customers.
- Earned $0.54 per American depositary receipt in Q3, $0.03 ahead of schedule.
- Predicted that the year will end with both sales and profits up in the mid-30s percentage wise.
- Confirmed that it is continuing to hire new workers.
- Confided that the company hopes to moderate costs through "right scaling" -- hiring less experienced, less expensive workers when possible and appropriate for the job.
- Gopalakrishnan expressly disclaimed knowledge of "any cancellations of projects [or] slowdown" in his business. On the contrary, he confirmed that Infosys is raising its rates on existing and new customers alike.
To recap, sales are still growing; profits, too. And the company is hiring new people to handle all the new business. Call me a Fool, but none of this sounds particularly ominous -- leading me to conclude that in the wake of a 6% sell-off, now just might be the perfect time to buy Infosys.
