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Newtown, Pennsylvania-based EPAM Systems, Inc. (EPAM) is a global leader in digital platform engineering and software development services. With a market cap of $9.6 billion, the company specializes in cloud solutions, AI-enabled transformation, and customer experience design, serving diverse industries worldwide.
Companies worth between $2 billion to $10 billion are generally described as "mid-cap stocks," EPAM fits right into that category, reflecting its significant presence and influence in the technology and digital transformation space.
Despite its notable strengths, EPAM stock has tanked 39.2% from its 52-week high of $275.49 touched on Apr. 9, 2024. Meanwhile, EPAM has plunged 28.4% over the past three months, significantly underperforming the Dow Jones Industrial Average’s ($DOWI) 1.3% dip during the same time frame.
EPAM’s performance has remained grim over the longer term as well. EPAM stock has dropped 14.7% over the past six months and 38.4% over the past 52 weeks, compared to Dow’s marginal 40 bps dip over the past six months and 6.1% gains over the past year.
To confirm the recent downturn, EPAM dropped sharply below its 50-day and 200-day moving averages in late February.
Despite reporting better-than-expected financials, EPAM Systems’ stock prices plunged 12.8% after the release of its Q4 results on Feb. 20 and continued to fall over 7% in the next trading session. The company’s revenues increased 7.9% year-over-year to $1.25 billion, exceeding the consensus estimates by a staggering 292 bps. Meanwhile, its non-GAAP adjusted EPS increased 3.3% year-over-year to $2.84, surpassing the Street expectations of $2.75.
However, the company’s organic revenues continued to decline in FY24 and its revenue growth was completely driven by acquisitions. Due to an increase in acquisitions, the company’s goodwill on the balance sheet has surged 110.1% year-over-year to $1.2 billion, representing 24.9% of EPAM’s total assets, almost double from 12.9% in 2023. This is a major cause of concern for long-term investors. Furthermore, the company gave an organic revenue growth guidance of 1% - 5% for FY25 and expects its adjusted net margin to range between 14.5% to 15.5%, down from 16.5% in FY24, which unsettled investor confidence.
While EPAM has performed better than its peer CACI International Inc’s (CACI) 26.8% decline over the past six months, it has significantly underperformed CACI’s 1.4% dip over the past year.
Analysts take a rather cautious stance on EPAM’s prospects. Among the 18 analysts covering the EPAM stock, the consensus rating is a “Moderate Buy.” Its mean price target of $261.59 suggests a 56.1% upside potential from current price levels.
