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As I like to do when I start looking for a stock to write about on this blog, I reviewed the list of top % gainers on the NYSE today. Satyam Computer Services Ltd. (SAY) closed at $36.11, up $1.04 or 2.97% on the day, making the list, in an otherwise unimpressive market environment today. I do not own any shares of this stock nor do I own any options.
According to the Yahoo "Profile" on Satyam:
"Satyam Computer Services Limited operates as a consulting and information technology (IT) services company. Its range of solutions include software development, business intelligence and data warehousing, consulting and enterprise solutions, embedded systems, engineering solutions, enterprise resources planning applications solutions, geographic information system solutions, enterprise infrastructure solutions, and enterprise storage solutions. The company also provides business process outsourcing; Internet access and hosting; and network and network-enabled services."The company is headquartered in Hyderabad, India.
Let's take a closer look at this Indian software company that provides extensive outsourcing services.
First, the latest quarter. On October 20, 2005, SAY announced 2nd quarter 2006 results. Revenue grew 9.09% sequentially and 33.97% year over year. (many of these results are in Rupees!). The net profit grew 34.195 year over year, and beat guidance. In addition, the company raised revenue guidance in the same report. As I like to say, this is the "trifecta": increasing revenue, earnings, and raised guidance---about as good a result as one can get from a quarterly report!
And how about longer-term results? What does Morningstar.com say about this company? Reviewing the Morningstar.com "5-Yr Restated" financials, we can see that revenue grew from $310.3 million in 2001 to $793.6 million in the trailing twelve months (TTM). Earnings are noted to have increased from $.52/share in 2003 to $.96/share in the TTM. Free cash flow has also improved from $88 million in 2003 to $132 million in the TTM.
The balance sheet, as reported by Morningstar.com, looks solid with $129.8 milion in cash, which alone can cover both the $86.1 million in current liabilities and the $30.1 million in long-term liabilities combined. In addition, the company is reported to have $203.1 million in other current assets.
And valuation statistics? Checking Yahoo "Key Statistics" on Satyam, the company is a large cap stock with a market capitalization of $5.81 billion. The trailing p/e is moderately rich at 32.24, the forward p/e (fye 31-Mar-07) is estimated at 23.76, and with the rapid growth expected to continue, we have a PEG of only 1.13.
Looking at the Price/Sales ratio, for relative valuation within its industrial group of "Information Technology Services", we can see that SAY is very expensive with a Price/Sales ratio of 6.1 per the Fidelity eResearch website. This is followed by SRA International (SRX) at a distant 1.7, Affiliated Computer Services (ACS) at 1.5, Anteon International (ANT) at 1.4, Computer Sciences (CSC) at 0.6 and Electronic Data Services (EDS) at 0.6. Certainly, from the point of view of this particular parameter, the valuation of this stock appears quite rich.
Going back to Yahoo for some additional numbers, we can see that there are 160.98 million shares outstanding with 876,910 shares out short representing only 1.3 trading days of volume. This doesn't appear significant to me. In addition, Yahoo reports that the company pays a small dividend of $.23/share yielding 0.60%. No stock splits are reported.
And a chart? Looking at a "Point & Figure" chart on SAY from Stockcharts.com:
We can see that the stock was trading "sideways" between January, 2002, and August, 2003, when it broke through resistance at $12.00 and then moved sharply higher. Once again, the stock showed weakness, dropping from a high of $36/share down to $17/share, until breaking through a new resistance level at around $22 in August, 2004, and moved higher from there. More recently, the stock appears to be moving ahead strongly.
So what do I think? The stock is certainly showing strong fundamental and technical strength with a superb quarterly report which also raised guidance, a solid Morningstar.com "5-Yr Restated" financials, including growing free cash flow and a solid balance sheet. Valuation-wise, the PEG being just a bit over 1.0 is encouraging. However, the Price/Sales appears very rich at 6.1, way ahead of other stocks in the same business.
With the other performance figures, I still find that the rest of the information outweighs this one statistic. If I were to be purchasing stock, this one might be on my list. However, as you may know, I only buy additional positions when one of my own positions hits a sale point on a gain and I am under my maximum # of positions, which is at 25 posltions at this time.
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