EPAM (EPAM)

Digital engineering services company EPAM Systems (NYSE:EPAM) announced better-than-expected revenue in Q3 CY2025, with sales up 19.4% year on year to $1.39 billion. Guidance for next quarter’s revenue was better than expected at $1.39 billion at the midpoint, 0.8% above analysts’ estimates. Its non-GAAP profit of $3.08 per share was 1.7% above analysts’ consensus estimates.

Company Overview

Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.

IT Services & Consulting companies stand to benefit from increasing enterprise demand for digital transformation, AI-driven automation, and cybersecurity resilience. Many enterprises can't attack these topics alone and need IT services and consulting on everything from technical advice to implementation. Challenges in meeting these needs will include finding talent in specialized and evolving IT fields. While AI and automation can enhance productivity, they also threaten to commoditize certain consulting functions. Another ongoing challenge will be pricing pressures from offshore IT service providers, which have lower labor costs and increasingly equal access to advanced technology like AI.

EPAM's competitors include global IT services providers such as Accenture, Cognizant, and Infosys, as well as digital-focused firms like Globant, Endava, and Grid Dynamics. The company also competes with the consulting arms of large technology firms and regional service providers in specific markets.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $5.30 billion in revenue over the past 12 months, EPAM is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, EPAM grew its sales at an incredible 15.6% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. EPAM’s annualized revenue growth of 5.4% over the last two years is below its five-year trend, but we still think the results were respectable.

EPAM also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 4% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that EPAM has properly hedged its foreign currency exposure.

This quarter, EPAM reported year-on-year revenue growth of 19.4%, and its $1.39 billion of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 11.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, an improvement versus the last two years. This projection is admirable and implies its newer products and services will fuel better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

EPAM has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 11.6%, higher than the broader business services sector.

Looking at the trend in its profitability, EPAM’s operating margin decreased by 4.9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, EPAM generated an operating margin profit margin of 10.4%, down 4.8 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

EPAM’s EPS grew at a spectacular 12.9% compounded annual growth rate over the last five years. However, this performance was lower than its 15.6% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into EPAM’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, EPAM’s operating margin declined by 4.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For EPAM, its two-year annual EPS growth of 1.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, EPAM reported adjusted EPS of $3.08, down from $3.12 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.7%. Over the next 12 months, Wall Street expects EPAM’s full-year EPS of $11.10 to grow 7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

EPAM has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.8% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that EPAM’s margin dropped by 3.5 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although EPAM hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 24.8%, splendid for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, EPAM’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

EPAM is a profitable, well-capitalized company with $1.24 billion of cash and $155.2 million of debt on its balance sheet. This $1.08 billion net cash position is 11.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly EPAM blew past analysts’ EPS guidance for next quarter expectations this quarter. We were also happy its full-year EPS guidance outperformed Wall Street’s estimates. On the other hand, its constant currency revenue missed. Overall, this print had some key positives. The stock traded up 5.2% to $169.20 immediately after reporting.

Updated: December 3, 2025 at 11:06 PM EST

Before deciding whether to buy EPAM or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There’s plenty to admire about EPAM. First off, its revenue growth was exceptional over the last five years. And while its diminishing returns show management's recent bets still have yet to bear fruit, its stellar ROIC suggests it has been a well-run company historically. On top of that, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

EPAM’s P/E ratio based on the next 12 months is 15.6x. Looking at the business services space right now, EPAM trades at a compelling valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $207.88 on the company (compared to the current share price of $199.76), implying they see 4.1% upside in buying EPAM in the short term.