Infosys Limited (NYSE:INFY) has been falling sharply recently, losing more than 19% over the past month. The stock got hammered this week when investors learned that the Securities & Exchange Commission (SEC) was investigating the company’s practices.
A couple of whistleblowers have raised alarm bells, supposedly with information that management has been too aggressive when it comes to recognizing revenue, particularly over the short term.
Governance issues aren’t new for Infosys, as the company’s previous CEO, Vishal Sikka, resigned after there were questions surrounding his leadership as well.
These latest developments have hurt the company’s stock price as it has reached a new 52-week low and gone well into oversold territory.
However, this might be an example of a stock where despite the significant dip in price, investors may want to avoid the stock until these investigations are over and investors have some answers about what the SEC has found.
If there are some damaging findings that hurt the company’s image, the stock could go on to plummet even further in value. Without confidence in the financials, it would be difficult for investors to buy shares of the company. After all, what good would a good earnings result be if investors weren’t sure how accurate or reliable they were?
While Infosys could very well recover from this, the India-based company is going to remain a risky investment for the foreseeable future. In a world where quarterly results and guidance can dictate where a stock goes, it’s going to be paramount that investors to trust the company’s numbers, and that could take a while.
