Is Innodata Stock's 4.65X PS Still Worth it? Buy, Sell, or Hold?
Innodata INOD shares are trading at a premium, as suggested by the Value Score of F. INOD stock is trading at a premium, with a forward 12-month Price/Sales of 4.65X compared with the Zacks Computer Services industry's 1.79X.Innodata shares are trading at a premium compared to its closest peers, including Broadridge Financial BR, CSG Systems International CSGS and EXL Service EXLS. In terms of the forward 12-month P/S, Broadridge Financial, CSG Systems International and EXL Service are trading at 3.88X, 1.54X and 3.55X, respectively.
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In terms of share price movement, Innodata shares have declined 0.8% year to date (YTD), underperforming the industry's and the Zacks Computer & Technology sector's return of 1.4% and 1.1%, respectively. Innodata shares have underperformed Broadridge Financial, CSG Systems International and EXL Service YTD, shares of which have surged 4.9%, 23.4% and 6.5%, respectively, over the same timeframe.
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The company plans to invest in AI technology supporting both current and prospective customers, as well as an expanding salesforce. In the second quarter of 2025, Innodata plans to invest $2 billion to support its largest customer. However, INOD's plan to invest in new programs before revenue realization is expected to weigh on near-term margins. Innodata targets an adjusted gross margin of 40%, which is significantly lower than the 43% reported in the first quarter of 2025 and the 41% in the year-ago quarter. Moreover, revenues from the largest customer are expected to decline 5% in the second quarter, which is a headwind.So, what should investors do with INOD shares at the current valuation? Let's find out.
The Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at 11 cents per share, down 39% over the past 60 days. Innodata reported break-even earnings in the year-ago quarter. The consensus mark for 2025 earnings is pegged at 69 cents per share, down 6.8% over the past 60 days, suggesting a 22.47% year-over-year decline.
Innodata Inc. price-consensus-chart | Innodata Inc. Quote
Innodata's Generative AI Test & Evaluation Platform is powered by NVIDIA's advanced inferencing technology. The platform integrates NVIDIA NIM microservices with Innodata's expertise in LLM red-teaming and risk mitigation. This combination enables businesses to accelerate model development while enhancing AI trustworthiness, a crucial factor for enterprise adoption. MasterClass was the inaugural charter customer, and Innodata is in active discussion with a leading global consulting firm for a go-to-market partnership. The solution will be generally available in late second-quarter 2025.Innodata benefits from massive investment promises made by the 'Magnificent 7,' including Microsoft's $80 billion and Meta Platforms' $64-$72 billion. The company is expanding relationships with key customers, including a second master statement of work with its largest client, tapping a separate, significantly larger budget. The company secured approximately $8 million in new engagements from four of its other Big Tech customers. Formerly, small accounts are showing material expansion opportunities into multi-million-dollar bookings.INOD is onboarding several major clients, including top global firms in enterprise tech, cloud software, digital commerce and healthcare technology, each with significant growth potential. New customer acquisitions are expected to provide meaningful upside to both the top and bottom lines. The company expects 2025 revenues to jump 40% year over year to $238.6 million, driven by an expanding clientele. Innodata serves the generative AI IT services market that is expected to be worth $200 billion by 2029, offering significant growth prospects. The company is building the capability to collect and create generative AI training data as LLMs become more complex and advanced. INOD continues to invest in expanding languages like Arabic and French within domains like math and chemistry, for which the company is creating LLM training data and performing reinforcement learning.
For current shareholders, holding the stock may be justified given Innodata's strong positioning in the growing generative AI safety domain and impressive revenue growth prospects. However, new investors might benefit from patience, carefully monitoring both the company's execution of its platform launch and any potential valuation adjustments in the market.Innodata currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to start accumulating the stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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