Cognizant (CTSH) hasn’t had a great year, as it is down about 3% over the past year versus gains for the S&P 500. The reason may be because various valuation metrics suggest that the stock is fairly valued at these prices. Therefore, it may not be a good bet here for further upside and it may be wise for investors to look elsewhere.
Cognizant’s trailing five-year valuation metrics suggest that the stock is fairly valued and they are all very close to their respective five-year averages. Cognizant’s current P/B ratio is 5.5 and it has averaged 5.6 over the past 5 years with a high of 10.5 and low of 2.7. Cognizant’s current P/S ratio is 3.8 and it has averaged 4.1 over the past five years with a high of 7.9 and low of 1.9. The stock’s P/E ratio is 26.3 and it has averaged 26.8 over the past five years with a high of 51.3 and low of 12.5.
On a forward P/E multiple, there is a similar conclusion. The stock is currently trading at about $72 a share with analysts expecting the company to report EPS of $3.41 next year for a forward P/E of 21. Revenues are expected to jump 22%. According to Yahoo Finance, competitors include Wipro Limited (NYSE:WIT) and Infosys (NYSE:INFY). Wipro is trading at $11 a share with analysts expecting EPS of $0.55 next year for a forward P/E multiple of 20. Revenues are expected to increase 13%. Infosys is trading at $54 a share with analysts expecting EPS of $3.28 next year for a forward P/E multiple of 16. Revenues are expected to grow 13%. Cognizant is trading at about fair value as although it has a bigger forward multiple; it also has higher growth rates than the other competitors.
On a cash flow basis, according to the Dividend Kings Fair Value metric, the stock is fairly valued as the website suggests that the stock is worth $75 a share versus its current $72 price.
Analysts also agree that the stock is fairly valued. The consensus price target for the analysts who follow Cognizant is $85. That is upside of 18%, pretty average for analyst targets.
Analysts have some credibility here as they have done a good job forecasting the company’s quarterly results.Cognizant has beat earnings estimates the past 4 quarters but the margins have been slim. The margins have ranged between 1-4 cents or about 2-6% from consensus estimates.
The stock has had a mixed year, starting it out at about $74 a share, rising to over $82 a share before falling below $55 a share in August and bouncing back to trade between the $60-$78 level. The stock sits above its 50 day moving average, which is at $67, and above its 200 day moving average with is at $70. Resistance on the upside includes its current $72 level followed by $78, its 6 month high. On the downside, the $62 level followed by the $60 level should provide solid entry points for the stock.
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