Cognizant Tag

Why Cognizant Shines Brighter as a Stock Pick

in Analysis

We’ve been eyeing investment opportunities in business process outsourcing for a while; lately, our interest is on the rise because of the industry’s declining stock prices. Cognizant stands out as a shining star. Its revenue has quadrupled since 2008, and the company is growing at a faster pace than very competent competitors such as India’s Infosys and Wipro. Even as Cognizant’s growth slows from its explosive level of more than 30 percent a year in previous decades, the Teaneck, New Jersey–based company’s revenue should still increase at 8 percent to 10 percent annually. There are several reasons for that continuing strong growth. The world is getting more and more IT-heavy every day, and old applications need to be maintained as well as new ones written. Developed countries like the United States don’t produce enough software engineers to satisfy the insatiable demand for new IT solutions. There are other things we like about Cognizant. Its business is very sticky and requires very little capital — people are hired as needed — and thus it has a very high return on capital. Cognizant, which is still managed by its young co-founder, 48-year-old Francisco D’Souza, has about $6 a share of net cash on the balance sheet...

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