Interim Risks, Good Long-Term Prospects

Investors may wait for temporary headwinds to play out before taking fresh positions

- Vivek Ananth

Hexaware Technologies, a midtier IT services firm, has been posting industry-leading revenue growth over the past 3-4 years. In the latest September quarter, however, the company’s revenue growth slowed and hence the management lowered the growth guidance for 2019 (the company follows calendar year as its accounting period) to 17-18 per cent from 19 per cent given earlier. It had reiterated its guidance only a month before the quarterly results were announced.

Hexaware’s stock has fallen by over 10 per cent since the results were declared. With this fall, Hexaware is trading at a trailing 12month price-to-earnings multiple of 17 compared with its three-year average of 18.7. It is cheaper than its mid-tier IT services peers such as L&T Infotech and Mindtree.

While the firm’s long-term prospects appear sound, a few client specific issues and expected margin pressure will weigh on the stock in the near term. Hence, investors can hold the stock and wait for interim risks to play out before taking fresh positions.

Slowing growth