 | Alpesh Patel
Trading Champion |
I've got a fresh Stock of the Week for you. It's a company called ExlService Holdings (EXLS). It offers business process outsourcing (or BPO - remember that from about 20 years ago?). It also offers automation services - which is the important bit - and data-driven insights to customers in multiple industries. There's your diversification. The company operates through four segments based on the products and services offered and the markets served: insurance, healthcare, emerging and analytics. That's good breadth, which you want as well. More than half of the company's revenue comes from business process management and related services. Businesses need to be efficient, cost-effective, competitive and highly productive. That's what a company like this helps with. That's what you use it for. The company saw revenues of $329 million in the first quarter of 2022, a 25% year-over-year increase. And I think as companies feel the pressure of a recession, they'll be looking to cut costs or become more efficient, more automated. That means companies like this should do well. ExlService won 19 new clients in the first quarter of 2022. That tells you a lot, doesn't it? [Have You Heard of the Bargain in Today's Market? Don't Miss Out. Click Here.] Now let's look at the company in a bit more detail. By my Growth-Value-Income system, it's got a rating of 8 out of 10. This is my proprietary algorithm that tells me about the valuation of a company, its profitability relative to its share price, its revenue growth, its dividend yields... all of these factors, which then help me assess it. And we score things out of 10. The algorithm itself is based on extensive research. We've taken information from Nobel Prize winners and from our own experience and then weighted the various criteria, such as valuation, revenue growth, cash flow, momentum and so on. So ExlService has an 8 out of 10, which is good. Its cash return on capital invested - or CROCI - is 13.8%. Now, remember, companies in the top quartile, the top 25%, by CROCI generally tend to produce 30% per annum returns according to Deutsche Bank, which invented this formula (which is now used by Goldman Sachs Wealth Management). Now, it doesn't mean you hold those companies forever. You pick them in any given 12-month period, companies in the top quartile. And then, for the next 12 months, you pick whichever the top-quartile companies are. And for the next 12 months, you pick the top-quartile companies. That's what gives you the 30% on average. Not guaranteed... but on average. So ExlService is part of that bundle. That's good. It doesn't mean it's going to get 30%, it doesn't mean it's guaranteed to go above it or guaranteed to go below it, but it's in the right direction. The company has good momentum. It's up 13% in the last six months. Not many companies can say that. Its Sortino ratio, the average of the return versus the volatility, or the risk of missing that return, is at 0.6. Ideally, you want it to be above 1, but very few companies do that. Above 0.5 or 0.4 is fine by me. Return alpha is good - that means it can outperform the market. Volatility is below 20%. That's good as well. So all good there. Pretax profits are on the rise. Turnover is on the rise. Profits for the financial year are on the rise. Net asset value is gradually going up. Total assets are going up. I know borrowing has been increasing. Well, actually, it's been holding steady for the last few years. So on the amount of borrowing the company has done, it's been able to generate ever-increasing turnover and profitability. That is good. It's a company which is doing the right thing. And what else have we got? In terms of quality, the return on capital employed, CROCI and return on equity are all good. The slight red flag is forecast P/E. That's at a multiple of 25.8. Now, the problem with that is the share price is forecast to be 25 times its future profitability. That's a bit high. And if that's missed, the price would get hit a bit. A multiple that high means quite a degree of optimism is already factored in. So we have to be a bit cautious and careful there. Now, if I look at the stock price chart, there have been a couple of analysts issuing "Buy" ratings recently. That's good. The stock is near all-time highs, which is surprising in this kind of market. Like I said, you don't often see that, do you? It's really taken off since the COVID-19 pandemic began. Before COVID-19, it had been growing, tagging along at maybe 10% per annum. Since COVID-19 - vroom. And I think whilst it's gone for a bit of a breather this year, it'll continue upward as well. So overall, I'm happy. I'm pleased with what's coming out of this company. That's my Stock of the Week, and hopefully, I've provided some good insights for you to learn as well. Thank you very much. You can see all the data and charts I've reviewed for the company in the latest episode of Stock of the Week. Just click here or on the image below to watch it. Happy hunting, Alpesh Want more content like this? | | | |
Alpesh Patel | Trading ChampionAlpesh Patel is an award-winning hedge fund and private equity fund manager, international bestselling author, and entrepreneur. He is the founder and CEO of Praefinium Partners, a Financial Times top FTSE 100 forecaster, and a senior Dealmaker in the U.K.'s Department for International Trade. As a recognized authority on fintech, online trading and venture capital, his past and current client list includes American Express, Merrill Lynch HSBC, Charles Schwab, Goldman Sachs, Barclays... and more. | | |
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