ExlService Holdings, Inc. (EXLS) is a high-quality growth stock that has been outpacing the S&P 500 by a significant margin over the last decade. It’s trading at a good valuation and just triggered a buy signal after a prolonged pullback.
It is a high-quality stock worth holding for the long term according to Trading.biz analyst Cory Mitchell. “EXLS has been growing earnings at a well-above-average pace, which translates into strong stock performance over the long term. And the stock just broke higher out of a pullback, indicating the next major leg of the uptrend is underway.”
ExlService Holdings helps businesses expand through the use of analytics and AI.
Over the last five years, the median earnings growth was 9.2% per year for S&P 500 stocks. EXLS has averaged 33.6% earning growth per year. Higher earnings are generally correlated to better stock performance, as more investors are willing to buy higher-profit companies.
Over the next five years, analysts expect that the median yearly growth of earnings for S&P 500 stocks will be 8.6%. EXLS is expected to grow earnings by 15.5% per year.
The stronger earnings have translated into stronger stock performance. Over the last decade, the S&P 500 has averaged a return of 12.2% per year. EXLS has averaged 18.9% per year. That’s 55% better yearly performance than the S&P 500.
Here are some other favorable traits of EXLS:
- Sales have increased an average of 13.5% per year over the last five years. That’s more than double the median sales growth of S&P 500 stocks at 6.5% per year.
- The company doesn’t pay a dividend, but they have been buying back shares yearly. The current buyback yield is 2%. Buying back shares tends to bolster share performance since profits are split between fewer shareholders over time.
- Because of its strong growth, the stock rarely trades cheaply in terms of price/earnings (P/E) ratio, but it is currently trading near its most attractive level in five years. P/E values have ranged between 23.9 and 54.8 over that time. The current P/E is 29.1, near the low end of that range, and the forward P/E is 18.8.
In terms of a buy point, the stock recently broke out of a descending channel or pullback. The stock peaked in late 2022 at $38.24. For more than a year the stock slid lower, until recently.
Since November the stock has been climbing, and in December it broke above the prior swing high and out of the descending channel it had been trading in.
That upside breakout could signal that the pullback is over and the long-term uptrend is resuming.
Longer-term traders may wish to consider holding the stock as long as it continues to post (and is expected to keep posting) earnings and sales figures that beat the S&P 500 averages. While the future is unknown, this generally correlates to better percentage returns than the S&P 500.
Past performance may not repeat in the future. Control risk in the event stock falls by only investing a portion of funds in any single stock. Also consider and plan your exit point, both if the stock rises or falls, before investing.
Disclaimer: The analyst quoted owns EXLS as part of a long-term portfolio of multiple stocks.
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