Headquartered in Bengaluru, India, Infosys Limited (INFY) provides international consulting, technology, outsourcing, and next-generation digital services. It delivers application development and management, independent validation, product engineering and management, infrastructure management, enterprise application management, and support and integration services. In comparison, Affirm Holdings, Inc. (AFRM) in San Francisco operates a digital and mobile-first commerce platform in the United States and Canada. The company’s platform includes point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.
The information technology services market is expected to grow exponentially due to increasing demand from almost every industry. Moreover, because governments worldwide are reinstating lockdown and travel bans to limit the spread of the highly transmissible COVID-19 omicron variant, the demand for information technology services is expected to rise further in the near term. According to Gartner, Inc. (IT) report, worldwide IT services spending is expected to reach $1.2 trillion in 2021, representing a 9.8% increase from 2020. Therefore, both INFY and AFRM should benefit.
Over the past nine months, AFRM has gained 24.3% in price, while INFY has returned 23.9%. Also, AFRM’s 69.6% price gains over the past six months are significantly higher than INFY’s 19.5% returns. Furthermore, AFRM is the clear winner with 15.3% gains versus INFY’s negative returns in terms of their past three months’ performance.
But which of these two stocks is a better buy now? Let’s find out.
On September 22, 2021, INFY announced a strategic collaboration with Amazon Web Services to develop quantum computing capabilities and use cases. Ravi Kumar S, President, Infosys, said, “Through our use of AWS in this space, we are bringing together the power of Amazon Braket and Infosys Cobalt to help enterprises build quantum computing capabilities and use cases to accelerate their cloud-powered transformation.”
On November 3, 2021, AFRM announced its official launch in Australia by expanding its partnership with Peloton, the leading interactive fitness platform that pioneered connected, technology-enabled fitness. The company’s launch in Australia represents its entry into the Asia-Pacific region, advancing its continued growth through international expansion.
Recent Financial Results
INFY’s revenue increased 20.7% year-over-year to $4 billion for its fiscal second quarter, ended September 30, 2021. The company’s operating profit grew 12% year-over-year to $941 million, while its net profit came in at $734 million, representing a 12.1% year-over-year increase. Also, its EPS was $0.17, up 13% year-over-year.
AFRM’s revenues increased 55% year-over-year to $269.39 million for its fiscal first quarter, ended September 30, 2021. However, the company’s adjusted operating loss for the quarter declined 469.4% year-over-year to $45.09 million, while its net loss came in at $306.62 million, representing a 7,670.3% year-over-year increase. Also, its loss per share was $1.13, up 1783.3% year-over-year.
Expected Financial Performance
Analysts expect INFY’s revenue to increase 12.7% for the quarter ending March 31, 2021, and 17.8% in its fiscal 2021. The company’s EPS is expected to grow 12.5% for the quarter ending March 31, 2021, and 14.8% in fiscal 2021. And its EPS is expected to grow at a rate of 8% per annum over the next five years.
In comparison, AFRM’s revenue is expected to increase 63.5% for the quarter ending March 31, 2021, and 46.1% in its fiscal 2021. Its EPS is expected to grow 67% for the quarter ending March 31, 2021, and 22.1% in fiscal 2021. However, AFRM’s EPS is expected to decline at a 34.2% rate per annum over the next five years.
INFY’s $14.91 billion trailing-12-month revenue is significantly higher than AFRM’s $965.87 million. INFY is also more profitable, with EBITDA and net income margins of 26.68% and 19.04%, respectively, compared to AFRM’s negative values.
Furthermore, INFY’s 29.68%, 16.35%, and 22.06% respective ROE, ROA, and ROTC compare with AFRM’s negative values.
In terms of trailing-12-month P/CF, AFRM is currently trading at 172.87x, which is 499.6% higher than INFY’s 28.83x. Furthermore, AFRM’s trailing-12-month EV/S ratio of 32.01x is 399.4% higher than INFY’s 6.41x.
So, INFY is relatively affordable here.
INFY has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast , AFRM has an overall D rating, which translates to a Sell. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
INFY has an A grade for Quality. This is justified given INFY’s 1.08% trailing-12-month asset turnover ratio, which is 67.4% higher than the 0.64% industry average. AFRM has a Quality grade of D, which is in sync with its 0.25% trailing-12-month asset turnover ratio, which is 60.8% lower than the 0.64% industry average.
In addition, INFY has a B grade for Stability, which is in sync with its 0,86 beta. In comparison, AFRM has a D grade for Stability, in sync with its 1.65 beta.
INFY has a B grade for Sentiment, which is consistent with analysts’ expectations that its EPS will increase in the coming months. In comparison, , AFRM has a D grade for Sentiment, which is consistent with analysts’ expectations that its EPS will remain negative in the near term.
Rapid digital advancements and increasing adoption of hybrid lifestyles are expected to drive the information technology services market’s growth. While both INFY and AFRM are expected to gain, we think it is better to bet on INFY now because of its lower valuation, higher profitability, and robust financials.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Outsourcing – Tech Services industry here. Also, click here to access all the top-rated stocks in the Technology – Services industry.
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INFY shares were trading at $22.87 per share on Tuesday afternoon, up $0.62 (+2.79%). Year-to-date, INFY has gained 37.13%, versus a 26.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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