Why Infosys Shares Sank

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Indian IT services giant Infosys (NAS: INFY) plunged 14% on Friday after the company's full-year outlook came in well below Wall Street expectations.

So what: Infosys' fourth-quarter EPS managed to top estimates, but management's premonition of a tough year ahead for the sector is triggering fresh concerns over rapidly slowing growth. Naturally, the news is also putting pressure on peers like Wipro (NYS: WIT) and Cognizant Technology (NAS: CTSH) , which are both down more than 3% today.


Now what: Management now sees full-year EPS of $3.12 to $3.17 on revenue of $7.55 billion to $7.69 billion, well below the consensus of $3.32 on $7.79 billion. "The year ahead looks challenging for the IT services industry, with slow recovery in the global markets," says CEO S. D. Shibulal. "We are executing on our Infosys 3.0 strategy which is meant to deliver high quality growth in the medium to long term." With the stock now down nearly 30% from its October highs and trading at a forward P/E of 15, betting on that long-term turnaround seems like a reasonable idea.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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