This stock from S&P 500 pack has gained 22% in two days; should you bet on it?

Zensar Technologies share price: Shares of Zensar Technologies have surged over 22 per cent in the last two trading sessions after the IT service management company released its quarter-ended March 2023 (Q4FY23) result on May 11, 2023.  The earnings release showed that the company registered a revenue of Rs 1,212.6 crore, a sequential quarter-on-quarter (QoQ) growth of 1.3 per cent. In constant currency terms, the revenue growth was 0.4 per cent for Q4FY23.

The company's margin — a key measure of profitability for a business, grew by 449 basis point (bps) to 11.6 per cent as compared to 7.11 per cent in the quarter ending December. Zensar Technologies’ profit after tax (PAT) stood at 9.8 per cent of revenues, a sequential QoQ increase of 340 bps. The company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) stood at Rs 140.7 crore as against Rs 85.2 crore logged in December 2022 quarter.

In a statement, Zensar Technologies said, “As we unlock the next phase of growth for Zensar, we honor that approach by making decisive moves that will propel us forward to deliver the highest value to our clients and their customers.”

“Though Zensar Technologies is looking lucrative at current levels, one needs to consider that for the last 5 months it has given a 79 percent return already,” said Jigar S Patel - Senior Manager - Technical Research Analyst, Anand Rathi Shares and Stock Brokers.

"Moreover, the relative strength index daily is looking extremely overbought which hints towards some profit booking in the counter. So, one needs to avoid fresh longs and book profits in the zone of Rs 385 - Rs 390 levels if already holding positions," Patel added.

Aman Soni, Head of Operations, Prudent Equity had similar view on the stock, “The company's profitability in FY23 got impacted to due a wage hike. Despite a 15 per cent increase in revenues, their profitability suffered a 22 per cent reduction. On a sequential basis, the company's growth for the quarter was in the low single digits across all geographies. The company is currently valued at 26 times earnings, making it difficult for it to justify its valuation going forward and for investors to profit from the stock,” said Soni.

He added the company derives over 35 per cent of its income from the BFSI sector in the USA, which is currently being adversely hit by the banking crisis in the country.

Vinit Bolinjkar, Head of Research, Ventura Securities said, "Zensar is now a debt-free company and holds its highest-ever net cash position of Rs 1,500 crore as of March 31, 2023, compared to Rs 1,336 crore on December 31, 2022. With sufficient cash reserves, the company is actively seeking merger and acquisition opportunities to accelerate its growth."

Zensar Technologies' share price history

On a year-to-date (YTD) basis, Zensar Technologies stock has surged over 76 per cent as compared to Nifty50’s rise of 1 per cent. On a six-month basis, the stock rose over 72 per cent against Nifty50’s decline of over 0.11 per cent.

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