Luxoft Holding, Inc. – Value Analysis (NYSE:LXFT) : December 5, 2016

Capitalcube gives Luxoft Holding, Inc. a score of 69.

Our analysis is based on comparing Luxoft Holding, Inc. with the following peers – Computer Sciences Corporation, EPAM Systems, Inc., Infosys Limited Sponsored ADR, Accenture Plc and Cognizant Technology Solutions Corporation Class A (CSC-US, EPAM-US, INFY-US, ACN-US and CTSH-US).

Investment Outlook

Luxoft Holding, Inc. has a fundamental score of 69 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • Luxoft Holding, Inc. Class A currently trades at a higher Price/Book ratio (5.06) than its peer median (3.90).
  • The market expects LXFT-US to grow at about the same rate as the peers and to maintain the median returns it currently generates.
  • LXFT-US‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • Over the last five years, LXFT-US‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While LXFT-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • LXFT-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

LXFT-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 0.02% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 1.02%), and a well-cushioned interest coverage level of 1,154.90x, LXFT-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 5 chosen peers for the company, only 4 of the stocks have an outstanding debt balance. Companies with no debt include INFY-US.

LXFT-US has maintained its Quick & Able profile from the recent year-end.

  • LXFT-US‘s interest coverage is its highest relative to the last five years and compares to a low of 19.38x in 2012.
  • Though its interest coverage increased to 1,154.90x from 999x (in 2016), its peer median remained relatively stable during this period at 294.47x.
  • Interest coverage rose 155.90 points relative to peers.
  • LXFT-US‘s debt-EV is similar to last year’s low of 0.02%, which compares to the 2014 high of 1.82%.
  • Compared to 2016, debt-EV has remained relatively stable for both the company (0.02%) and the peer median (1.02%).

Access the detailed analysis for Luxoft Holding, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Computer Sciences Corporation 33.4 1.23 1.81 30.2
EPAM Systems, Inc. 1.02 5.19 0 417.41
Infosys Limited Sponsored ADR N/A 3.93 No interest exp 999
Accenture Plc 0.04 1.35 294.47 18294.13
Cognizant Technology Solutions Corporation Class A 3.59 3.56 120.22 231.28
Luxoft Holding, Inc. Class A 0.03 2.51 1154.9 20452.39
Peer Median 1.02 3.04 294.47 708.21
Best In Class 0.03 5.19 1154.9 20452.39

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Company Profile

Luxoft Holding, Inc. operates as a provider of software development services and information technology solutions to a global client base consisting of multinational corporations. The company’s services include software development and support, product engineering and testing, and technology consulting. It provides its services to six industry verticals: Financial services, Travel and aviation, Technology, Telecom, Automotive and transport and Energy. The company was founded in March 2000 and is headquartered in Zug, Switzerland.

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