The stock sells are around 2675 which equates to a forward PE of around 29.5.
I have always had a bearish opinion on the valuation from a long-term standpoint( analysing an IT services company and dollar-depreciation-will-stress-test indian offshore model ) . Some key concerns for me have been
- Sustainability of the 30 % + operating margins. Indian companies really don’t have patent on off shoring. Accenture and IBM are scaling up their Indian operations well. There very very few companies which have had such margins globally for a very long period of time ( Only monopolies like Microsoft )
- Impact of a dollar depreciation over long term on the profit margins
- Huge reliance on US for growth and revenue
- Cost pressures ( salary etc)
That said, my bearish viewpoint has somewhat reduced in the recent past. I was looking the financial numbers of Accenture. Accenture sells at around 25 usd and has a trailing PE of 14. The revenue numbers are around 15 Bn usd and the ROC capital for accenture is 50 % +.
If infosys were to continue to do well and eventually grows to the size of accenture ( and this is the big question ), then the current valuations are justified or the company is slightly undervalued. But if anything were to go wrong, like dollar crash or a recession or continued increase in the salary costs in the interim then the stock price could get punished.
Maybe worth holding onto the stock. But not worth selling ?
Ps : I own infosys stock ( used to work for infosys in the past )