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 IT services firm Cognizant Technology Solutions (CTSH -0.39%) surged on Monday after the company reported revenue and earnings for its first quarter that were slightly higher than what analysts were expecting. Up as much as 11% Monday morning, the stock had settled a bit by noon, up 8% at that time.
So what: Cognizant reported revenue of $2.91 billion, up 20.2% year-over-year and $20 million higher than analyst expectations. Non-GAAP EPS was $0.71 for the quarter, up from $0.62 in the first quarter of 2014 and a penny better than the consensus analyst estimate. On a GAAP basis, EPS of $0.62 increased from $0.57 in the first quarter of 2014.
Cognizant's Healthcare segment, which accounts for 30% of the company's total revenue, grew by 42.7% year-over-year during the first quarter. The company's largest segment, Financial Services, grew by 13.4%, and Manufacturing/Retail/Logistics grew by a slower 7.2%. Geographically, North America, which accounts for the vast majority of Cognizant's revenue, grew by 24.8%, while Europe grew by just 1.2%.
The company guided for second-quarter revenue of at least $3.01 billion and non-GAAP EPS of at least $0.72, mostly in-line with analyst estimates.
Now what: Cognizant's strong quarter pushed the stock up to a new 52-week high on Monday. The company has a long history of strong, reliable growth, and analysts expect this growth to continue. The average analyst estimate for annual earnings growth over the next five years is 16.7%.
Accounting for the stock's rise today, Cognizant now trades at a P/E ratio of about 27 based on 2014 earnings. Investors considering the stock will need to weigh the company's growth prospects along with this fairly lofty valuation.