Some interesting findings on Infosys’ journey from IPO to now:
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If you held on to your Infosys shares since their listing in June 1993 till now, you would have made a CAGR return of 42.1%. Your money would have multiplied 9544 times.
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If you were extra smart and you sold out at the peak PE ratio of 322x on 8th March 2000, you would have made a CAGR of 203%. Your money would have multiplied 2326 times in just 7 years.
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Interestingly, even if you bought the stock at the huge PE of 322x on 8th March 2000 and held on to your shares till now, you would have still made a CAGR of 7.5%.
This seems a respectable return considering that:
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The stock was bought at an astronomical PE & it underwent a huge PE compression from 322x to 22x as on date
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the stock did not regain the 8th March 2000 price for the next 6 ½ years (needed loads of patience)
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the 7.5% is a compounded return unlike the simple interest you receive in a bank fixed deposit.
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From the peak PE of March 8th, 2000, the stock fell 85% over the next 18 months. The market provided ample opportunity to buy the stock & improve your return over the 7.5% CAGR.
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The dividend pay-out ratio increased from 15% in FY1994 to 69% in FY2019. This makes sense as large doses of free cash flows were reinvested in the initial years, in a business which was growing fast & at high RoE/RoCE.
Once growth slowed down, high pay outs provided a reasonable dividend yield (2.8% at present) and a downside cushion to the stock price.
Analysis FINAL.pdf (171.9 KB)