Virtusa Stock to Gain Further from Evolving Fintech
With today’s stock, we continue with another of our favorite methods of investing in growth stocks. Stocks of companies that help other enterprises go digital and get ready for the changing business landscape will stand to gain in the coming years. By investing in such stocks, investors are most likely to reap superlative returns.
The case in point being Virtusa Corporation (NASDAQ:VRTU), which is a global business consulting and information technology (IT) outsourcing company that aims to speed up the business outcomes for its clients. The company supports Forbes Global 2000 clients across large consumer-facing industries like Banking & Financial Services, Insurance, Communications, Media & Entertainment, and Healthcare, as they look to improve their business performance besides lowering IT costs.
Virtusa stock has been doing well as the firm gets ready to announce its third-quarter results in two weeks. Let us look at the growth catalysts for the company, especially in the area of financial technology.
Virtusa is well prepared for the so-called “fourth industrial revolution” (4IR), which is driven by the convergence of technology innovation, rising consumer expectations, expanding supply chains, and emerging start-ups aiming to disrupt the way businesses have traditionally operated. The growing millennial population and advances in technologies like mobility, big data analytics, cloud computing, and social media are providing many opportunities that were not possible earlier.
The company focuses primarily on three industries: Communications & Technology, Banking, Financial Services & Insurance, and Media & Information. It builds expertise through its customer experiences and industry alliances by hiring industry specialists. This has helped in better business performance and good returns from VRTU stock.
There is huge competition in the IT services space as organizations from all industries continue their drive toward digital in order to stay ahead in the game. As per a recent forecast by Gartner, Inc., worldwide IT spending is projected to touch $3.7 trillion in 2018, a 4.5% increase from 2017. (Source: “Gartner Says Global IT Spending to Reach $3.7 Trillion in 2018,” Gartner, Inc., January 16, 2018.)
It further said that the global IT spending growth began to turn around in 2017, with continued growth expected over the next years. The main drivers of this growth are expected to be projects in digital business, blockchain, Internet of Things (IoT), and progression from big data to artificial intelligence (AI).
And this is what Virtusa has been focusing on for the past few years. It has invested in developing deep capabilities in areas of IoT, AI, and robotics process automation (RPA) to solve specific business problems for its clients.
Over the past year, the company has also increased investments in its FinTech Lab and is currently helping some of the most innovative banking and financial services clients build and implement solutions around blockchain and open banking API platforms. Virtusa has also replicated the success of its FinTech Lab to other industries by creating innovation labs that support the insurance and healthcare industries.
Although there is immense competition in the space, Virtusa has been executing its strategy well and is focused on developing industry expertise, especially in the financial services sector. The company won the IDC FinTech results award from IDC Financial Insights for Efficiency and Agility. (Source: “Virtusa’s Digital Transformation Program for Mashreq Bank Wins 2017 IDC FinTech Rankings Real Results Award,” Virtusa Corporation, November 14, 2017.)
Virtusa successfully implemented a leading-edge digital transformation program powered by automation and artificial intelligence for its client, Mashreq Bank, which is a leading bank in the UAE region. Virtusa was one of five companies recognized for successful implementation of future-enabling fintech solutions.
VRTU stock has soared over the last one year. The uptrend is likely to continue as the business is expected to gain further with the financial services sector planning to spend more on IT. Virtusa’s BFSI clients continue to plan increased investments in digital solutions as well as push toward automation across IT operations and business processes.
The drive toward digital transformation has helped the company in delivering impressive results in the second quarter. It posted revenue of $248.2 million, an increase of 18.1% year-over-year. Adjusted diluted EPS came in at $0.35, an increase of 30% year-over-year. The BFSI results were better than expected driven by the growth of its banking clients. (Source: “Virtusa Announces Second Quarter 2018 Consolidated Financial Results,” Business Wire, November 8, 2017.)
Virtusa experienced strong momentum in the second quarter, which it expects to continue through the remaining fiscal year. Hence, the company has raised its fiscal year 2018 guidance. Its pipeline continues to expand strongly on a year-over-year basis.
Growing business has been pushing Virtusa stock higher. VRTU stock is up almost 160% in the last five years and more than 70% over the last one year, as shown in the stock chart below.
Chart courtesy of StockCharts.com
Virtusa stock has brighter days ahead as the company continues to invest in the area of “Digital Transformation” solutions and strengthens its capabilities. The expanding client relationships are helping it grow and expand its market share. With the financial sector undergoing a rapid technological change, more clients shall come to rely on Virtusa for their most strategic digital transformation programs.
The company is investing in its capabilities, to capitalize on the significant long-term growth opportunities, and this bodes well for VRTU stock. Investors who believe in the digital future should not miss this opportunity.