You might think that investors would be impressed by a company capable to putting up 45% fourth quarter organic growth. That was not the case for EPAM Systems, whose stock fell 2% in trading overnight in New York, meaning the shares have lost more than 30% in 2022 to date, now trading at $440.99.
The stock was trading beyond $700 as recently as November 2021.
UK investors may not be familiar with EPAM but it has become a respected household name in technology circles thanks to its tremendous all-weather growth.
EPAM is a Pennsylvania-headquartered IT services company providing digital platform engineering and software development services globally, with thousands of clients looking to the company for help getting online and improving their internet delivery strategy, among many other things.
POLISHED PERFORMER
Since 2018 the $25 billion company has more than doubled revenues, operating profit and net income (or earnings). Latest results added more polish to that reputation. Q4 to 31 December 2021 saw adjusted operating profits and headline revenues jump 52% to $206 million on $1.11 billion, with organic growth of 45%, presuming constant currencies. Earnings per share was $2.76.
Forecasts had been pitched at $2.51 EPS on $1.08 billion revenue.
‘Incredibly strong,’ is how Megabuyte analyst James Preece described the Q4 numbers. ‘Enterprise digital transformation demand and a shortage of skills is driving significant volumes of new work and expansion within existing clients across sectors,’ Preece said.
CLEAR & PRESENT DANGER
The elephant in the room is EPAM’s Ukrainian roots. With Russian invasion looming, it is not great news than the majority of the company’s development workforce operates out of Ukraine and neighbouring Belarus.
Management says its eastern European operations are largely independent of local infrastructure when it comes to project delivery, and the company has navigated bouts of political tension previously. The company also believes it can shift resources to bases far from the conflict zone.
But it is hard to see that performance won’t be affected if broadband and data centre access is damaged, even if its people can be kept safe.
Will customers think twice in the current environment about EPAM’s ability to shift resource into other regions should the conflict escalate, is an obvious question for the short-term.
‘Only time will tell, but it certainly justifies EPAM’s decision to accelerate scaling delivery resource in other regions through organic and acquisitive means over the past year,’ said Megabuyte’s James Preece.
