Indian information technology giant Infosys (NYSE: INFY) exploded 9% higher through 1:10 p.m. ET Thursday after reporting strong earnings for its fiscal Q1 2025.
Heading into the report, analysts forecast Infosys would earn $0.18 per share on $4.65 billion in sales. Infosys nailed the earnings target, and reported sales of $4.71 billion, beating on the top line and meeting on the bottom line -- and promising even better results in the future.
Infosys' Q1 earnings
Infosys' financial results ranged from modest to downright terrific. Sales growth for the quarter was only 2.5% year over year in constant currency terms, but still better than expected. Infosys scored a 21% operating profit margin on its sales, resulting in much stronger earnings growth of 7% (in rupees) and 5% (in dollars).
Best of all, though, was growth in the all-important category of free cash flow. Infosys generated $1.1 billion in cash profits in Q1, an increase of 57% over one year ago -- and 43% better than reported net income.
Is Infosys stock a buy?
And the near-term news looks pretty propitious as well. Turning to guidance, Infosys guided for stronger growth in sales, up 3% or even 4% this year, with operating margins continuing to range from 20% to 22% -- so roughly equal to Q1. This implies that earnings growth this year should be respectable -- perhaps in the upper single digits.
Management didn't say whether its free-cash-flow growth can continue to outperform as it did in Q1, however -- and most analysts don't seem to think it will, forecasting a long-term profits growth rate of only 7%. Even with the stock currently looking cheaper on a free-cash-flow basis (26.4) than on P/E basis (27.2), I don't see the stock as particularly cheap based on that long-term growth rate.
Long story short: Enjoy today's profits if you earned them -- but at today's valuation, Infosys stock doesn't really look like a long-term buy to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
