Why TCS Stock is Falling | TCS Stock at 52-Week Low Levels

Tata Consultancy Services Stock is currently trading near its 52-week low levels. The stock price of TCS has been falling sharply in the recent past. Hence in this article, we will be discussing what are the possible reasons behind the fall in the TCS stock price and what could be the outlook for the near to mid-term. So, let’s get started!

Possible Reasons for Fall in TCS Stock Price:

1. Weak Q1FY23 Results:
2. The Earnings Before Interest & Taxes (EBIT) margin declined by 185 bps.
3. The EBIT margin is at 23.1% falling from the high level of 26%. Margins of the companies are suffering due to supply-side issues like the attrition of employees in IT Companies also affected the margins.
4. Margins could be under pressure till FY24.
5. Recession and Slowdown fears in the Developed World. There is the possibility of a Slowdown in the GDP Growth in the US, while deep recession in Europe & United Kingdom. TCS derives 55% of its revenue from US business and 30% from Europe & UK business. Due to recession/GDP growth slowdown in these geographies can lead to a reduction in IT spendings by the Fortune 500 companies which can impact the IT sector business and TCS specifically.

Valuation:

• In September 202, TCS was trading at a 60% premium to its 5-year Median PE ratio. Due to too much future business discounting took place during that euphoria in the IT sector.
• The Current PE of TCS stock is around 28 which is trading at a discount to its 1-Year Median PE of 35.77 and 3-Year Median PE of 32.81. Compared to the 5-year Median PE i.e. 26.12, the stock is trading at a premium of 7%.

What Should Investors Do?

Due to the uncertainty from the US, UK, and Europe economies and supply side (labor attrition issues), margins will be under pressure. The IT Sector has excellent earning visibility with good growth. Here, the TCS stocks are currently trading at reasonable valuations as per their PE levels, so investors looking to invest in IT stock can keep TCS stock on their radar. Follo due diligence before making an investment decision.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.