Several Reasons Why This Smallcap IT Stock Could Be A Perfect Stock To Buy Now

IT company, eClerx Services is in a sweet spot, which is why the stock is a great buy at the current levels. Geojit has recently highlighted it as the stock pick for the month of Jan, 2022. Here are some of the reasons why Geojit believes it is a great stock to buy at the current levels.

Strong growth almost certain

According to the Geojit report, currently, the US is experiencing labour shortages, with a rise in employee costs. This has compelled several US-based companies to outsource work to countries like India.

"We do not believe that employee shortages will ease in the US in the near term, and hence the trend of offshoring work will continue for an extended period. eClerx is a process management and data analytics company that will reap the benefits from this trend of offshoring. The company has done exceptionally well in the first half of FY2022, and we strongly believe it will do well in the second half as well as in FY2023. The company generates good cash flow, which they could either use for inorganic growth or buyback of equity shares. Recently, eClerx completed a buyback at Rs. 2850 premium to current market price.

Here is the summary from Geojit and the reasons it is recommending to buy the stock of eClerx

• High wages in the US and labour shortages open a good growth rate for eClerx.
• The company has demonstrated strong financial growth in the first half of FY2022, with top-line growing by 45% and net profit by 70%.
• The company is likely to maintain a similar growth in the second half too. We predict the highest-ever net profit for FY2022.
• The company is confident of its growth post FY2023 and of its margins remaining healthy in the future.
• Inorganic growth is one of the ways a company expands its business. In December 2020, eClerx acquired a Texas-based company called Personiv.
• The company recently completed a buyback of shares at Rs. 2850 and its current market price is a discount to the same.
• Growth in earnings and reduction in equity capital due to buyback will enhance growth in earnings for the company.
• Despite a higher attrition rate of 41%, the company will continue to maintain its core team thus not impacting its business operations or growth path.
• Despite its relatively small size, institutional investors enjoy healthy patronage owning a 33% stake in the company.
• The market has a penchant for IT stocks. It would help if market sentiment went soft to allow the company to sell. eClerx has the potential of being a low-risk, high return company.
• Our technical indicator suggests a bullish signals.

The stock of eClerx was last trading at Rs 2865 on the NSE.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. The author and his family do not own any of the stocks mentioned above.

Courtesy: Geojit Securities.