Cognizant Technology Solutions: This Shows Where CTSH Stock Is Going Next

ctsh stockCognizant Technology Solutions Corp (NASDAQ:CTSH) stock has not been kind to investors in 2015—and 2016 didn’t start out well for the company, either.

Since the markets rebounded in early February, Cognizant Technology stock has been one of the best-performing tech stocks with solid momentum. Better yet, its 50-day moving average is just about to cross over its 200-day moving average, which is a bullish sign suggesting better days are ahead for Cognizant Technology Solutions investors.

Investors Cognizant of Cognizant’s Gains

Cognizant Technology Solutions has been a frustrating company to watch since the start of 2015, but it didn’t start out that way. Investors were, no doubt, encouraged when the company’s share price soared roughly 20% in October 2014 on the heels of a new agreement and solid third-quarter results, with CTSH stock finding support near $52.00 per share.

ctsh stock chart

Chart courtesy of

The information technology (IT) consulting and business process outsourcing services company’s share price received an additional boost in early February 2015 after releasing strong year-end results. The stock climbed another 20% and found support near $62.00 per share.

Over the rest of 2015, though, Cognizant’s share price failed to really capitalize on that earlier momentum and, for the most part, traded in a tight range—that is save for the random pop and plummet that scared away most investors, a common lament for many stocks last year.

Admittedly, Cognizant Technologies’ share price did advance 13.5% in 2015, a significant return, especially when you consider the S&P 500 lost 0.7% of its value. Even the iShares Dow Jones US Technology (ETF) (NYSEARCA:IYW) gained just 3.2% in 2015. That was a little underwhelming, as the company’s share price trended to the downside over November and December. Again, the company’s share price just couldn’t sustain any momentum.

However, it’s been different this year. Since the markets bottomed in early February, Cognizant’s share price has climbed more than 20%. This time, though, the gains have come over a longer period of time and the company’s share price has been gaining momentum.

ctsh stock-chart

Chart courtesy of

The company’s share price recently breached its 50-day moving average. On top of that, Cognizant’s 50-day moving average is poised to cross over its 200-day moving average—a bullish indicator called a “golden cross.”

Inverse Head and Shoulders Pattern Points to Breakout

For those who like technical indicators, the inverse head and shoulders pattern that started back in November is one that predicts the reversal of a current downtrend. The first and third troughs indicate the shoulders and the second trough is the head.

ctsh stock chart analysis

Chart courtesy of

Investors generally take a long position when the price rises above the resistance of the neckline. In the case of Cognizant, the resistance level is near $63.00. This is setting up Cognizant stock for some solid upside over the summer months.

Should the company’s share price break above the $63.00 resistance level, investors can look for Cognizant’s share price to climb to a new 52-week high above $70.00 per share.

Strong Q1 Results and Reaffirmed Guidance

There are plenty of reasons to be bullish on Cognizant Technology. In early May, the company announced that first-quarter revenue climbed 10% year-over-year to $3.2 billion; net income climbed 15.2% to $441.2 million, or $0.72 per diluted share; and non-GAAP earnings per share (EPS) came in at $0.80 compared to $0.71 in the first quarter of 2015. (Source: “Cognizant Announces First Quarter 2016 Results,” Cognizant Technology Solutions Corp, May 6, 2016.)

The company’s balance sheet and cash position remains robust. To that end, the company repurchased 4.3 million shares in the first quarter at a total cost of $244.6 million. Like most tech companies, Cognizant does not provide an annual dividend.

Going forward, thanks to momentum with new and existing clients and a focus on higher-growth areas, Cognizant expects to deliver sequential revenue growth in the second quarter of between $140 million and $200 million. To support this growth, the company has increased its global headcount by 11,300 employees.

Cognizant also reaffirmed its 2016 financial results with revenue expected to be in the range of $13.65 billion to $14.00 billion. At the low end of guidance, that represents a 10% increase over the $12.42 billion reported in 2015; at the high end of guidance, it represents a roughly 13% increase. Fiscal 2016 non-GAAP diluted EPS is expected to be in the range of $3.32 to $3.44. In 2015, non-GAAP EPS was $3.07 and in 2014, it was $2.60. (Source: “Cognizant Reports Fourth Quarter And Full Year 2015 Results,” Cognizant Technology Solutions Corp, February 8, 2016.)