Infosys Stock Is as Steady and Cheap an Investment as You Could Want

Infosys (NYSE:INFY) is worth buying if you like relatively inexpensive stocks with recurring revenue, earnings, and free cash flow. Although it’s an Indian software consulting company, the U.S. accounts for almost two-thirds of its revenue. With the exception of the rare big swing, Infosys stock has traded in a predictable range for the last few years.

Infosys Stock Is as Steady and Cheap an Investment as You Could Want

Source: AjayTvm /

INFY reported its fiscal Q2 earnings ending Sept. 30. I must say their presentations are probably the driest I have ever seen of a public company. No glowing press release. Just a few charts. A table with a ton of ratios. And nothing that turns your head.

But maybe that’s a good thing. It shows focus. And this company is really focused on making money. It has a very high net income margin.

For example, its net income is very high as a percentage of revenue. Net profit after tax divided by revenue is 17.9%.  Although this is lower a bit this past quarter, as seen in the chart below, that is still a very impressive number.

Moreover, the Infosys stock price is not expensive. The INFY market value is $40.6 billion. In the last 12 months, Infosys made $2.2 billion in net income. So its trailing P/E ratio is only 18.5 times.

That is a very cheap ratio for a company that has such a high net income margin.

Infosys Is A Cash Flow Machine

FY Q2 2020 INFY NPAT Margins

Infosys stock is also worth buying since the company produces a good deal of free cash flow.

In the last 12 months, Infosys had a free cash flow of $1.88 billion. Since revenue over the period was $12.39 billion, the FCF margin was 15.2%. This is a very high ratio compared to most companies.

Infosys stock has a free cash yield of 4.6% ($1.88 billion divided by $40.6 billion). Again, that is a very high yield for a company with such a profitable FCF margin.

For the future, the company gave guidance that its operating margins would be roughly the same as the past several quarters. I expect the same will be true for its free cash margins as well.

Infosys Stock, Buybacks and Dividends

Infosys is one of the few foreign stocks that believes in buying back their own shares. In the past 12 months, the company has bought back almost $1.2 billion of its own shares. That represents 2.9% of its market value.

In addition, INFY stock has a 2.71% dividend yield. So its total yield (buyback yield plus dividend yield) is 5.8%. That means that the return of capital payments made by Infosys from its free cash flow represents 5.8% of its market value.

That shows that the company is very dedicated to producing shareholder value. Moreover, by reducing its shares outstanding the company can pay higher dividends per share each year, for the same dividend cost.

For example, in the past five years, the company has grown its dividends by 26.7%, according to Seeking Alpha. But the dividends represent only 46% of its earnings. So it is not over-paying the dividend.

Bottom Line on Infosys Stock

So, in effect, Infosys is not only profitable, conservative and cheap, but it is keenly focused on producing shareholder value. Moreover, the 5.8% total yield of INFY stock is very attractive.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review hereThe Guide focuses on high total yield value stocks. Subscribers get a two-week free trial.

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