Infosys has lost about 11 percent of its market cap from Wednesday's close. The loss in market cap isn't the result of an earnings miss. Infosys reported 73 cents a share, in line with estimates and an improvement of 6 cents (8.2 percent) from 67 cents during the same period last year.
Unfortunately, what truly captures Wall Street's attention is guidance. Infosys was already trading below the widely followed 200- and 90-day moving averages, adding fuel to the liquidation based on chart technicals.
In my Infosys earnings preview I warned about guidance. Investors looked for at least $3.08 in earnings (for ADRs) for the year, and Infosys is guiding lower towards $3.03 for a year-over-year growth of 1%.Revenue for the current year is expected to be at least $7.34 billion according to the company, while the average estimate was $7.47 billion based on 15 analysts. Despite Infosys' efforts to maintain its margin, earnings in the latest quarter was affected by a sharp 3.7% drop in billing rates. The falling Indian rupee against the dollar hindered Infosys' growth rate. In constant currency terms Infosys is growing at 6%, nevertheless after adjusting for the strength in the U.S. dollar the growth is cut to 5%. INFY data by YCharts
The chart to watch for Infosys is the monthly chart. In the monthly chart, you can find this month's drop moving through the 60- and 90-month moving average. Both these levels offer support and resistance. More important, both offer a history of reactions with price retracements that suggest Infosys will once again trade above $40 soon. The next level of support doesn't come into play until $22. Infosys is far from testing the key support. Revenue is a bright spot for Infosys. Infosys is running at a full sprint with revenue hurtling over $7 billion annually. That is an extension of over 50 percent over 2010. Infosys' management blames reluctance of corporate buyers to purchase due to the economic situation. Based on sales it appears reasonable, and likely a short-lived obstacle.
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