The consulting firm EPAM Systems (EPAM 20.51%) experienced a rather precipitous decline yesterday – a tumble of 18.4% by mid-morning. One might have expected a period of mourning, yet the occasion appears to stem from a report that, on the surface, wasn’t entirely disastrous. Indeed, they managed to exceed expectations in both sales and earnings, a feat which, in the current climate, ought to elicit a polite nod of approval, not a rout.
The analysts, those oracles of modest foresight, had anticipated earnings of $3.16 per share on revenues just shy of $1.4 billion. EPAM, with a flourish, delivered $3.26 on revenues marginally exceeding that figure. A triumph, one might suggest, though one quickly discovers that appearances, particularly in the realm of finance, can be deceiving.
A Question of Accounting
The earnings, it transpires, are not quite as robust as they seem. Sales did, admittedly, surge by 13% in the fourth quarter. And the company’s “pro forma” profits – a term increasingly employed to obscure inconvenient truths – were up 15%. However, when one delves into the slightly more rigorous realm of Generally Accepted Accounting Principles (GAAP), the picture becomes less rosy. GAAP earnings clocked in at a mere $1.98 per share – a full 39% below the pro forma figure and a modest 10% increase year-over-year. A rather significant discrepancy, wouldn’t you agree?
For the full year, sales growth reached 15%, reaching $5.5 billion. Non-GAAP profits crept up a mere 6%, while GAAP profits experienced a distinctly unenthusiastic decline of 14%, landing at $6.72 per share. One begins to suspect that the art of creative accounting is thriving within the firm.
The Artificial Intelligence Gambit
EPAM’s CEO, Balazs Fejes, assures us that the company is “scaling and accelerating our AI-native revenues.” A bold claim, particularly given the current frenzy surrounding artificial intelligence, and one that the revenue growth, at least superficially, supports. However, the weak GAAP performance in the fourth quarter and the year-over-year decline in profits are, shall we say, disconcerting. It is a familiar pattern: a dazzling new narrative employed to distract from less palatable realities.
The company’s guidance offers a glimmer of hope. They anticipate a slowing of sales growth to around 6% in 2026, but a surge in earnings to approximately $8.10 per share – a 20% improvement over last year, and a threefold increase in the rate of sales growth. A rather optimistic projection, but one that, if realized, would render the stock’s current valuation – trading at just over $136 – surprisingly reasonable, with a price-to-earnings ratio of a mere 16.8x.
Perhaps, then, today’s sell-off presents a buying opportunity. Though one might also suggest that a healthy dose of skepticism is always advisable when contemplating ventures in the ever-fickle world of high finance.
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2026-02-19 18:42