EPAM Stock: The Ever-Growing IT Services Giant

EPAM Stock
Credit: iStock.com/traviswolfe

EPAM Stock Rises on Strong Revenue Growth

Today’s stock represents another of our favorite strategies to reap above-average returns—investing in venture capital stocks. This means investing in the stocks of companies that provide differentiated products or services to firms in different industries. Such companies, having built a niche for themselves, continue posting solid growth year after year and make their investors rich in the process.

The case in point being EPAM Systems Inc (NYSE:EPAM), a software engineering firm that makes investors excited about the future potential of IT services. It is one of the stars in this very competitive space where it has built its niche and reputation. The company is a leading provider of software product development and digital platform engineering services to Forbes Global 2000 clients located around the world. With a strong focus on innovative and scalable software solutions and a continually evolving mix of advanced capabilities, EPAM delivers results for the most complex business challenges.

Its vertical-specific domain expertise is in great demand, which is evident from the excellent results recently reported by the company. The company just declared its third-quarter results and they are phenomenal. Revenue reported was around $378.0 million, representing organic growth of 26.6% year over year. EPAM stock got a good boost following the announcement. The strong growth was driven by the need for companies to stay competitive under constant disruption. (Source: “EPAM Reports Results for Third Quarter 2017,” EPAM Systems Inc, November 2, 2017.)

As per the forecast by Gartner Inc (NYSE:IT), global IT spending will reach $3.5 trillion in 2017, driven by growth in software and IT services revenue. Moreover, software spending was projected to grow six percent in 2016 and will grow another 7.2% in 2017 to total $357.0 billion, as the software and IT services segments remain the bright spot for the IT industry. IT services spending is likely to increase 4.8% in 2017 to reach $943.0 billion. (Source: “Gartner Says Global IT Spending to Reach $3.5 Trillion in 2017,” Gartner Inc, October 19, 2016.)

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EPAM Systems is in a great position to take advantage of this trend. Despite the challenges in the field, EPAM manages to post around 20% organic growth year after year, with its focus on providing differentiated solutions for its clients. It is a company with a strong reputation and market-beating returns, as evident by the rise of EPAM stock.

An exciting growth area is the financial services segment, which accounts for almost 25% of the total revenues and is the largest vertical of the company. Given the many factors in favor of the rise in financial technology (e.g. the increase in electronic payments), the future growth of this segment looks promising.

EPAM Systems has significant experience working with global investment banks, firms, brokerages, and commercial and retail banks. The company helps clients in this vertical market with challenges stemming from new regulations, compliance requirements, and risk management. In the third quarter, financial services vertical registered a 15% growth.

As the challenges in financial services firms keep growing in the coming years, EPAM stock should have a lot of room to grow. Take payments, for example. Globally, payments are undergoing great disruption and the world of payments is getting opened up to new players and business models. EPAM is helping such players adapt to the changing payment landscape.   

Not only this, EPAM is building a strong business in verticals like healthcare, life sciences, and media, as well. Media and entertainment vertical posted a growth of 42% in the quarter.  

EPAM stock should continue to gain from the rising demand for its software development services as other companies struggle to undertake digital transformation. EPAM expects revenue growth for fiscal 2017 to be at least 24%.

A positive factor is also the way company is able to retain most of its clients who want to engage more with the company. EPAM has been partnering with the world’s leading companies to imagine, design, and engineer software and customer experiences that transform businesses.

EPAM stock is trading at record highs, has gone up by almost 478% in the last five years, and has returned an impressive 67% over the last one year. The following stock chart shows this astounding rise.

EPAM stock chart

Chart courtesy of StockCharts.com

CEO Arkadiy Dobkin said that the results reflected continued high demand for the company’s services across industries and geographies. With decades of software engineering and integration experience, EPAM helps companies in the financial services space solve their most challenging problems and deliver results that transform the industry. When it comes to capabilities related to the Internet of Things (IoT), the company offers expertise in big data and machine learning to enable data-driven decision-making across the enterprise.  

Analyst Take:

EPAM Systems has strong profitability and impressive free cash flow. It also has strong vertical-specific knowledge, backed by extensive experience of merging technology with the business process of its clients. This allows the company to deliver tailored solutions to various industry verticals.

The company’s core competency lies in providing complex software product development services to meet software and technology companies’ constant need for innovation and agility. And this shall continue to increase in the future. With the strong momentum that EPAM has built at present, it is one of the biggest gainers from the changing technology landscape in its space. EPAM stock may be trading at record levels at present, but this venture capital stock is en route to go higher.