Bengaluru, India-based Infosys Limited (INFY) and London-based Paysafe Limited (PSFE) are two prominent players in the information technology (IT) services industry. Headquartered in Bengaluru, India, INFY provides consulting, technology, application development and management, outsourcing, product engineering and management, and next-generation digital services. It serves financial services, life sciences, healthcare, manufacturing, retail, logistics, communications, telecom OEM, media, energy, and utility industries. In comparison, PSFE provides digital commerce solutions to online businesses, SMB merchants, and consumers through its Paysafe Network. It focuses on iGaming and emerging Markets, including stock, FX and crypto trading, direct marketing, travel and entertainment, integrated payments, and digital goods.

Upon the rapid digitization of various industries, the growing adoption of cloud-based services, big data storage, and automation of various business operations has been driving the information technology services industry’s growth. Increasing IT spending by enterprises, and the growing need for consulting services, should help IT services companies thrive.

Investors’ interest in this space is evident in the Vanguard Information Technology ETF’s (VGT) 6.8% returns over the past nine months versus the SPDR S&P 500 Trust ETF’s (SPY) 5.9% gains. The North American IT Services market is expected to grow at a 7.6% CAGR to reach $660.9 billion by 2026. So, both INFY and PSFE should benefit.

But while PSFE’s shares have declined  78.1% in price over the past year, INFY has gained 28.5%. INFY is also a clear winner with 3.7% gains versus PSFE’s negative returns in terms of the past six months’ performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On Dec. 14, 2021, Finland-based pharmaceutical company Orion Corporation has selected INFY to transform its ERP and planning platforms, enhance employee experience, and drive business value realization. INFY’s standardized best SAP practices offering will enable informed decision-making and end-to-end supply chain visibility at reduced business operations costs. Offering these services should allow Orion to sustain a long-term partnership with INFY.

On Nov. 25, 2021, PSFE partnered with Huawei Technologies Co., Ltd., a leading global provider of information technology and communications technology infrastructure and smart devices, to deploy PSFE’s online cash payment solution “paysafecard” as an alternative payment method in the Huawei App Gallery. Using the paysafecard account, consumers can use cash to shop for goods and services online simply and securely. This should enable PSFE to gain a wider customer base.

Recent Financial Results

INFY’s revenue for its fiscal 2022 third quarter, ended Dec. 31, 2021, increased 20.9% year-over-year to $4.25 billion. The company’s gross profit came in at $1.39 billion, up 12.3% from the prior-year period. Its operating profit was $998 million, representing an 11.8% rise from its prior-year value. INFY’s net profit came in at $774 million for the quarter, indicating a 9.8% rise from the prior-year period. And its  EPS increased 5.9% year-over-year to $0.18. The company had $2.15 billion in cash and equivalents as of Dec. 31, 2021.

For its fiscal 2021 third quarter, ended September 30, 2021, PSFE’s revenue decreased marginally year-over-year to $353.59 million. The company’s non-GAAP gross profit was  $208.73 million, down 5.2% from the prior-year period. Its operating loss came in at $301.18 million, indicating a 7692.6% rise from the year-ago period. PSFE’s net loss was $147.20 million for the quarter, representing a 286.1% year-over-year rise. Its loss per share decreased 33.3% year-over-year to $0.20. The company had $262.27 million in cash and equivalents as of Sept. 30, 2021.

Expected Financial Performance

Analysts expect PSFE’s EPS to rise 16.4% year-over-year in fiscal 2022, ending March 31, 2022, and 15.5% in fiscal 2023. Its revenue is expected to grow 137% year-over-year in fiscal 2023.

In comparison, PSFE’s EPS is expected to remain negative in its fiscal year 2021, ended Dec. 31, 2021, and in fiscal 2022. Its revenue is expected to grow 4.5% year-over-year in fiscal 2022.

Valuation

In terms of forward EV/Sales, INFY is currently trading at 5.67x, which is 82.3% higher than PSFE’s 3.11x. In terms of forward EV/EBITDA, PSFE’s 10.62x compares with INFY’s 21.36x.

Profitability

INFY’s trailing-12-month revenue is almost 10.5 times PSFE’s. INFY is also more profitable, with a 23.8% EBIT margin versus PSFE’s 4.7%.

Furthermore, INFY’s net income margin and return on equity of 18.6% and 30.3%, respectively, compare favorably with PSFE’s negative values.

POWR Ratings

While INFY has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, PSFE has an overall D grade, equating to a Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

INFY has an A grade for Quality, consistent with its higher-than-industry profitability ratios. INFY’s 18.6% trailing-12-month net income margin is 186.4% higher than the 6.5% industry average. PSFE has been graded a D for Quality, which is in sync with its negative trailing-12-month net income margin.

In terms of Sentiment, INFY has been graded a B, which is consistent with analysts’ higher estimates regarding its revenue growth. INFY’s revenue is expected to be $4.33 billion for the next quarter, ending June 30, 2022, representing a 14.4% rise from the prior-year period. However, PSFE’s C grade for Sentiment is in sync with analysts’ lower revenue estimates. The company’s revenue is expected to decline 3.9% from the prior-year period to $362.73 million for the next quarter, ending March 31, 2022.

Of the 11 stocks in the A-rated Outsourcing - Tech Services industry, INFY is ranked #4.

PSFE is ranked #49 of 53 stocks in the C-rated Consumer Financial Services industry.

Beyond what we have stated above, our POWR Ratings system has also rated INFY and PSFE for Growth, Value, Momentum, and Stability. Get all INFY ratings here. Also, click here to see the additional POWR Ratings for PSFE.

The Winner

The continuing adoption of remote working structures and increased spending on information technology services should benefit both INFY and PSFE. However, we think better analyst sentiment and higher profitability make INFY a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Outsourcing - Tech Services industry, and here for those in the Consumer Financial Services industry.

INFY shares were trading at $23.49 per share on Monday afternoon, up $0.83 (+3.66%). Year-to-date, INFY has declined -7.19%, versus a -5.64% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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