Sometimes a large-cap stock from a growth sector remains relatively unknown to retail investors.
That’s the case with EPAM Systems (NYSE: EPAM), a Pennsylvania-based company that provides outsourced infotech and lifecycle software development. In other words, the company manages the processes and tools for managing software systems from their inception through their lifetime of usage.
EPAM’s services include prototype testing and design.
The company has a market capitalization of $36 billion, but is not yet tracked in the S&P 500. However, many industry analysts believe it may be on deck to join the index later this year. That can benefit a stock, as index funds must scurry to buy shares.
EPAM’s market cap is higher than some stocks currently in the S&P 500, so the notion of the company joining the index is hardly radical.
Broader Industry Outpacing The Market
EPAM is part of the tech services sub-industry within the tech sector. The sub-industry itself has been strong, with fellow group members including Taskus, Perficient, Grid Dynamics, Globant and Endava, all of which are outpacing the broader market in terms of price appreciation.
Industry-wide price performance has moved steadily higher over the past six months, making tech services one of the top performers right now.
EPAM formed a series of three bases between September 2020 and late March of this year. Even so, it notched price gains in February and March, and every month since then. Shares rallied to an all-time high of $648.72 at the open Tuesday, then retreated to negative territory for the session, as the broader market also turned south.
EPAM is up 35.45% in the past three months and 79.54% year-to-date.
Let’s dissect the most recent breakout and rally. On February 16, the stock rallied to a new high of $402.62, but pulled back to end the session lower. It corrected 16% before rebounding on March 31, clearing that point in volume 60% heavier than normal.
It has been trending higher since then, dipping down to its 10-day or 21-day lines on occasion, but remaining well above its 50-day moving average.
A retreat to one of those shorter moving averages can offer an add-on buy point following a breakout from a base. However, at this juncture, another base would offer an entry point where you’re potentially less likely to get shaken out in a perfectly normal pullback.
Mid-session Tuesday, the stock was finding support just at its 10-week line. That’s an indication of strength, but a little selling at this point would likely set the stage for a fresh round of buying from institutional investors looking for a lower entry point.
Institutions Track Price Movement And Fundamentals
Don’t forget: Those institutions operate on algorithms that track a stock’s support relative to particular prices and moving averages. That’s why you so often see a base or pullback begin a fresh rally when the stock sinks to a certain point - and no lower.
The fundamentals also matter to institutional investors, of course. In that department, EPAM has been a true leader.
When the company reported quarterly results in early August, it topped analysts’ views by $0.11, earning $2.05 per share. Revenue of $881.40 million also beat, coming in ahead of expectations for $861.36 million.
EPAM’s revenue grew at double-digit rates in each of the past eight quarters, with year-over-year increases ranging between 11% and 39%.
Revenue growth accelerated in the past three quarters and grew 22.40% on a three-year annualized basis.
Earnings per share, too, have been increasing at double-digit rates, accelerating in the past four quarters.
On a three-year annualized basis, operational earnings growth clocks in at 29.93.
Annual earnings have grown for the past seven years.
For the full year, Wall Street expects earnings of $8.43 per share, a 33% increase over 2020. That’s seen rising another 26% to $10.58 per share next year.
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