I like Virtusa (NASDAQ: VRTU). It is my idea of emerging growth comfort stock. There is nothing capricious about this investment. No wild swings, no frayed nerves. It is steady, strong and has produced consistently since it hit the market in August of 2007 with an IPO of $14. Today shares sell for just over $15 and the company has a market cap of $388.06 million. It has found a comfortable niche in the IT sector of the market and is an investment for the long-haul.
The Westborough Massachusetts based business offers a broad range of information technology services including IT consulting, technology implementation and application outsourcing. This small cap prize operates globally with locations in North America, Europe and Asia. Virtusa focuses on helping companies accelerate business outcomes by consolidating their core consumer-facing processes into one or more core systems. The company has garnered a slew of awards over the past two years with the latest being the 2012 Silver Stevie, recognizing Virtusa’s outstanding global Human Resources, business work environment and benefits for employees.
Revenue for second quarter 2012 was $72.2 million, an increase of 3 percent sequentially and 30 percent year-over-year. Income from operations was also up at $6.6 million compared with $5 million for second quarter fiscal year 2011. Revenues are being driven by new client growth and increased demand for Virtusa’s application outsourcing service and show no signs of abating. Analysts predict that the company’s revenues will grow 13.1 percent in the next quarter and that earnings per share will expand 27.8 percent.
Shares of Virtusa have climbed an impressive 30 percent over the past year. The predicted earnings growth is 23.3 percent for the next five years, higher than the 20 percent expected for the IT sector as a whole. The valuation is extremely attractive considering the company’s earnings prospects. The stock has a PEG ratio of .07, compared with the peer group’s 2.6, which indicates a potential upside. The return on equity is 10.5 percent, again higher than the peer average of 8.5 percent.
Investor confidence in the way the company is being run is apparent by the tremendous gains that have been made just over the past year. Experts are calling for the growing trend to continue. The strength of the business can’t be denied and investors are content to leave their money here for the long-term. Virtusa may be small cap but it packs a big punch.