For investors aiming to construct a portfolio on firm foundations instead of temporary market feeling, the ideas of value investing present a proven structure. Its essence is finding companies selling for less than their true worth, offering a prepared "margin of safety." This method, established by Benjamin Graham and used notably by Warren Buffett, concentrates on financial soundness, earnings power, and lasting expansion, all while requiring a good price. A systematic filter for stocks with good valuation grades along with satisfactory marks in earnings power, financial soundness, and expansion can reveal possible prospects the wider market might have missed.
One company that appears from such a systematic search is Genpact Ltd (NYSE:G), a worldwide professional services company concentrated on digital change and business process management. An examination of its fundamental analysis report indicates it matches several main value investing standards.
Good Valuation Measures
The main search for a value investor is to find good companies obtainable at a sensible price. Genpact’s valuation measures are notable, forming the foundation of its high ChartMill Valuation Grade of 8 out of 10.
- Price-to-Earnings (P/E): With a P/E ratio of 12.72, Genpact is priced lower than about 83% of similar companies in the IT Services field. This ratio is also much lower than the present S&P 500 average of 27.21.
- Forward P/E: The view stays good looking forward, with a forward P/E ratio of 11.37. This signals a very good valuation, priced lower than more than 86% of field competitors.
- Price-to-Free-Cash-Flow: The company also seems low-priced based on its cash production, trading at a Price/Free Cash Flow ratio lower than 84% of its field peers.
This mix of low earnings multiples implies the market may not be completely valuing the company’s earning capacity, a traditional beginning point for value-focused analysis.
Good Earnings Power and Financial Soundness
A low price alone can be a "value trap" if the basic business is poor. So, value investing stresses good earnings power and a firm balance sheet. Genpact receives high marks here, with an Earnings Power Grade of 8 and a Financial Soundness Grade of 8.
- High Returns: The company shows very good returns on capital, with a Return on Invested Capital (ROIC) of 14.49%, doing better than almost 88% of its field. Its Return on Equity of 21.67% is also with the best in its sector.
- Good Margins and Patterns: Genpact has a firm Operating Margin of 14.87% and a Profit Margin of 11.01%, both of which have shown gain in recent years.
- Firm Balance Sheet: Financially, Genpact is in good condition. It has an acceptable Debt/Equity ratio of 0.33 and an Altman-Z score of 3.61, signaling low short-term bankruptcy danger. Importantly, it could pay all its debt in under two years based on its present free cash flow, showing high solvency.
This financial sturdiness gives the stability value investors look for, making sure the company can weather economic declines and keep investing in its business.
Lasting Expansion Path
While pure value investments sometimes include static businesses, the most successful picks often join a good price with an expansion path. Genpact’s expansion profile is stable instead of remarkable, giving it an Expansion Grade of 5. For a value plan, this steady, predictable expansion is often better than unstable, high-risk growth.
- Earnings Expansion: The company has increased its Earnings Per Share (EPS) by an average of 9.38% each year over recent years, with a 15.38% rise in the last year. Analysts think this motion will continue, forecasting average yearly EPS expansion of 12% moving forward.
- Revenue Expansion: Revenue expansion has been stable in the mid-single digits, a pattern expected to continue. This dependable top-line growth supports the bottom-line earnings expansion.
This steady performance suggests the company is performing well in its market, a main factor in supporting a higher true worth than the present market price might suggest.
A Prospect for the Value-Centered Portfolio
Genpact presents a case that matches a practical value investment view. It is not a deeply troubled asset but an earning, financially sound company with a steady expansion profile that is trading at a reduction to both its field and the wider market. The mix of a low valuation multiple, high returns on capital, a firm balance sheet, and stable expansion makes a situation where the determined true worth probably is greater than the present market price. This difference is exactly what value investors try to use, giving that important margin of safety.
For investors wanting to examine other companies that meet similar standards of good valuation, earnings power, soundness, and expansion, more study can be done using a set "Decent Value Stocks" screen.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer to buy or sell any security. The analysis is based on data and fundamental reports available at the time of writing. Investors should do their own complete study and think about their personal financial situation and risk tolerance before making any investment choices.
