When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as HCL Technologies Limited has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
See our latest analysis for HCL Technologies
HCL Technologies Limited provides software, business process outsourcing, and information technology (IT) infrastructure services worldwide. HCL Technologies was established in 1976 and with the company’s market cap sitting at US$1.40t, it falls under the large-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
HCL Technologies currently has US$83.23m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With an interest coverage ratio of 222x, HCL Technologies produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its operating cash flows amply covers its total debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means HCLTECH is financially robust in the face of a volatile market.
HCLTECH’s profit growth over the previous five years has been positive, with an average annual rate of 15.66%, overtaking the industry growth rate of 11.03%. It has also returned an ROE of 24.30% recently, above the industry return of 13.22%. HCL Technologies’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.
Next Steps:
Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. HCL Technologies tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:- Future Outlook: What are well-informed industry analysts predicting for HCLTECH’s future growth? Take a look at our free research report of analyst consensus for HCLTECH’s outlook.
- Valuation: What is HCLTECH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether HCLTECH is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.