Take a look at the chart below. It shows something very very interesting. This is the stock price chart (adjusted for splits, bonus issues etc) of Infosys, one of India’s most admired companies.
One of the most-admired companies in one of the world’s fastest growing economies – a company which is debt-free, earns super returns on capital, and is run by a management team which is renowned for its operating skills as well as integrity. And the stock earns nothing in the biggest bull market India has ever seen!
What could explain an outcome like that???
Has the company’s earnings declined?
NO! See the chart below:
At the peak of the tech bubble, the investment (speculative?) community was so optimistic about Infy’s prospects, that every rupee of earnings was thought to be worth Rs 350 or so. Today, markets are so pessimistic about Infy that every rupee of its earnings is thought by Mr. Market to be worth no more than Rs 23.
Ben Graham’s “Security Analysis” starts with Horace’s observation: “Many shall be restored that are now fallen and many shall fall that are now in honor.”
What can Infy do to restore its honor, given its current market value, its competitive position, and its financial strength?
What should Infy do?