Virtusa Stock Is Heading to Higher Ground

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Virtusa’s Growth Is a Catalyst for Higher Stock Prices

Continuing with my small-cap technology theme, an intriguing information technology (IT) services company that is showing strong growth and pointing to a potential chart breakout is Virtusa Corporation (NASDAQ:VRTU).

Virtusa has been around for over two decades as a provider of IT solutions to Forbes Global 2000 companies in North America, Europe, and Asia.

The company’s services include IT consulting, application maintenance, development, systems integration, and managed services.

On the chart, Virtusa stock is easily outperforming the S&P 500 and the Nasdaq, advancing 8.9% this year and a stellar 56% over the past year.

VRTU stock is hovering around its 50-day moving average and well above its 200-day moving average.

Virtusa is currently trading in a sideways channel between $42.00 and $50.00, which has been in place since November 2017. Prior to this, VRTU stock staged two breakouts from accumulation bases in July and October 2017.

Chart courtesy of StockCharts.com

While the relative strength is neutral at this point, Virtusa stock appears to be displaying a bullish cup and handle formation that could see the stock break to $60.00 and establish new record highs.

My Fundamental Bull Case for VRTU Stock

Virtusa has been ramping up revenues since fiscal 2004 (ending March) from $42.8 million to $858.7 million in fiscal 2017, representing an impressive 13-year compound annual growth rate (CAGR) of almost 26%.

Virtusa Corporation Revenues ($ Millions)

FY13

$333.2
FY14

$396.9

FY15

$479.0
FY16

$600.3

FY17

$858.7

Revenue growth has increased in four straight years, including by a strong 43% in fiscal 2017.

Virtusa Corporation Revenue Growth

FY14

19.1%
FY15

20.7%

FY16

25.3%
FY17

43.0%

But, given the increase in the revenue base of Virtusa, it shouldn’t be a surprise to expect the revenue growth rate to moderate to more normalized levels.

The consensus estimates call for Virtusa to grow revenues 18.6% to $1.0 billion in fiscal 2018 and 18.0% to $1.2 billion in fiscal 2019. (Source: “Virtusa Corporation (VRTU),” Yahoo! Finance, last accessed April 27, 2018.)

On the bottom line, Virtusa has been profitable in 13 straight years, seeing growth in the last four years.

The earnings per share (EPS) trend is positive and has been moving higher over the past 90 days, which is bullish and points to stronger earnings momentum.

Virtusa is estimated to earn $1.63 per diluted share in fiscal 2018 versus $1.25 per diluted share in fiscal 2017, followed by $2.20 per diluted share in fiscal 2019. (Source: Ibid.)

Analyst Take

The valuation for VRTU stock is set to improve to 21.8 times the 2019 consensus EPS and 20 times the high estimate, compared to 242 times the trailing EPS.

With Virtusa’s fundamental story continuing to be bullish and the chart pointing to a potential breakout toward $60.00 and higher, this stock is worth a closer look.