With the recent swoon in payments/IT services sectors, a longer-term perspective is needed to evaluate the sector. Moshe Katri, the FinTech/Payments/IT Services analyst at Wedbush, offered up this perspective on today’s “Wednesday’s With Wedbush’ segment on PreMarket Prep.
“In general, IT services has done pretty well throughout the pandemic,” he said.
"The pandemic accelerated spending with everything that is digital.”
While some companies were able to accelerate already strong growth, others were not.
Who Got Left Out? One company in the space that has been unable to accelerate growth not only since the pandemic but for years on end is International Business Machines Corp. (NYSE:IBM).
The main problem with the company is that it still derives much of its income from “legacy services,” he said. Not only are these services capital intensive, but labor-intensive as well.
While much of the industry has gone in the opposite direction, IBM has not successfully made the conversion to more automated services.
Katri summed up his view on the company.
“Unless you have the right services, you are not going to be able to grow as fast.” In his opinion, being such a large company, IBM still has a lot of work to get out of the “value trap” it has been in for years on end.
Doing It The Right Way: A few companies that have been successfully able to grow their IT services business, such as EPAM Systems (NYSE:EPAM) and Endava PLC (NYSE:DAVA), have retreated as well. Now these companies are confronted with a new problem, and that is how to grow their business post-pandemic.
Katri explained: “The real question for these companies now is with growth normalizing at 25%-30%, which is respectable.”
The companies were priced at much higher growth and have corrected with much of the growth tech sector.
The recent correction in these issues “has reflected the normalization,” and from his perspective, these issues “look attractive at these current levels.”
The full discussion with Moshe Katri from Wednesday’s broadcast can be found here:
