EPAM Systems (NYSE: EPAM) is a Pennsylvania-based company that is the largest customized software manufacturer and consultancy provider globally. It specializes in product development, digital platform engineering, and digital product design.
Shares of EPAM Systems are currently subjected to record selloffs due to the extreme volatility equity markets are facing following the Ukraine-Russia conflict. EPAM stock has now fallen below $200, which is the lowest since April 2020, and has lost more than 50% of the value in the past five days, making it a pretty risky investment option.
EPAM stock is down 66% from all-time highs. However, despite the ongoing pullback, it has returned 1,650% to investors in the last ten years.
EPAM Systems stock has exposure to Ukraine and Russia
The conflict in Eastern Europe has not been kind to most stocks, particularly EPAM Systems. It is because a massive chunk of the company’s software development services is performed by employees located in Ukraine, Belarus, and Russia. More than half of the company’s global delivery, administrative and support personnel are located in those regions.
To be precise, about 14,000 of its employees are in Ukraine, including 13,000 delivery personnel as of 24th February 2020. So, the emergence of the current situation has wholly disrupted the company’s operations.
Moreover, as there is a lack of clarity as to when the war is about to end in those areas, the situation has turned much worse for EPAM, and the company even went to the extent of withdrawing its first-quarter and full-year earnings guidance for 2022. Yes, the company is trying to relocate its workforce stuck over there to other areas in Ukraine where risk is comparatively lower, but there is no certainty as to when normalcy will prevail, or when work can be resumed.
Finances and assets in war regions
Another concerning matter for EPAM is about 4.5% of its total revenues come from the war struck regions. The company’s 10-K for 2021 states it derives about $168.04 million of its revenues from Central and Eastern Europe (CEE), including sales from customers in regions like Russia, Belarus, Kazakhstan, Ukraine, and Georgia. Further, Russia alone contributes $165.41 million of its revenue and $32.55 million of its operating profit. EPAM reported revenue of $3.76 billion in 2020.
Other than revenues, EPAM might also face some liquidity issues. The company has $232.6 million of cash and cash equivalents located in the banks in Russia, Belarus ,and Ukraine, which is 16.1% of its total cash balance. Further, as of 31st December 2021, $78.29 million worth of its long-lived assets are in Ukraine, $75.42 million of them in Belarus, and around $16.61 million are located in Russia. With a SWIFT ban on Russia, this means 72% of its long-lived assets are locked in those regions.
The final takeaway
EPAM Systems expects the economic sanctions by the European Union, the U.K, the U.S. and Canada on Russia can be damaging to its business operations. These material threats might threaten the future viability of EPAM Systems.
Alternatively, the pullback in EPAM stock provides investors with a buying opportunity given its market cap of $14 billion. In case the situation de-escalates quickly, you can expect the stock to gain momentum and touch record highs.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
