Digital Transformation seems to be a buzzword these days. Cloud computing, 5G, and other trends are proving to be strong tailwinds for the technology and the IT industries. As a result, investors have been working towards finding the best information technology stocks to buy right now over the past year. One stock worth looking at is Cognizant Technology Solutions. It is a leading company in IT consulting and outsourcing services. The company also has strong offerings in areas like artificial intelligence and cloud computing. As compared to its peers, Cognizant has a higher share of revenues coming from healthcare and financial services sector customers.
The Strengths And Weaknesses Of Cognizant
Cognizant reported that it earned a staggering 90% of its overall revenue from existing customers. This means that it has a high customer retention rate which can be possible because of a moat known as customer switching costs. Cognizant appears to be providing solutions and services that are critical to its clients’ operations. Therefore, customers are not easily swayed by a competitor’s services and are likely to stick with Cognizant.
Cognizant, however, could be facing a headwind if there is consolidation in the healthcare and financial services sectors. As pointed out above, the company counts these two sectors as its most important. Consolidation activity can reduce the bargaining power of Cognizant and affect margins as a result. Cognizant also use the H1-B visa facility, and any politically-driven changes to US visa policy can prove to be a headwind for the company. However, that currently looks unlikely. Cognizant’s strong growth credentials mean that it is among the best information technology stocks to buy.
Cognizant’s stock has performed well over the last 12 months. Its stock has gained 83% over that time period. The stock was trading around $76 on 19th March 2021. Another software company, EPAM Systems, is considered to be a peer of Cognizant in the IT sector. EPAM’s stock has gained 125% over the past 12 months and was trading around $379 on 19th March 2021.