Does the Company Trade at a P/E Ratio That Is Less than Its Growth Rate?

Infosys had an EPS growth rate of 24.84 percent for the last 10 years. In December 2010, the stock was trading at a price-to-earnings (P/E) ratio of 30.63, which meant the stock was selling for higher than the long-term growth rate of EPS. The company can manipulate the EPS numbers when they buy back the shares because the number of total diluted outstanding shares will be less.

For this reason, you need to look at the owner income growth rate. For Infosys, the owner income growth rate is 36.28 percent for the last 10 years. If you compare this growth rate with the P/E selling ratio of 30.63, the company is selling for less than the owner income growth rate.

Result for this checklist item: Pass.