Infosys (INFY) stock has been in a sharp uptrend since late September, but options traders believe a pause is likely after the company’s upcoming earnings event on Oct. 23. Consensus is for the company to record $0.21 in earnings per share (EPS) for its second financial quarter, which would represent a 5% increase from last year.
Despite recent gains, however, Infosys shares remain down about 27% versus the start of this year.
Where Options Data Suggests Infosys Stock Is Headed
The derivatives market isn’t entirely convinced that 5% year-on-year growth would prove enough for INFY shares to extend gains any further.
In fact, Barchart’s options data pegs the put-to-call ratio on contracts expiring Nov. 20 at 2.49x currently, indicating a very strong bearish skew. More importantly, the lower price on those contracts is set at $11.52 as of this writing, indicating potential for a nearly 10% decline within the next four weeks.
That said, Infosys currently pays a rather lucrative 4.11% dividend yield, which makes it attractive as a long-term holding for income-focused investors.
Why Else Caution Is Warranted in Playing INFY Shares
Infosys shares also face a tougher business backdrop than their recent recovery might suggest. Weaker discretionary technology spending, slower client decisions, and AI-related pricing pressure stand to weigh on its full-year growth outlook.
Crucially, the artificial intelligence challenge cuts both ways. Automation does create opportunities, but clients can demand lower prices as projects require fewer billable hours.
That raises the risk that new AI contracts partly replace existing sales rather than deliver additional growth.
For investors, therefore, an earnings beat alone may offer limited reassurance. Sustaining the rally could require convincing evidence that new bookings are translating into faster revenue growth without sacrificing profitability.
It's also worth mentioning that INFY’s relative strength index (RSI) already sits in the early 70s, signaling overbought conditions that often trigger a near-term pullback.
What’s the Consensus Rating on Infosys?
According to Wall Street analysts, Infosys’s recent rally is already overextended and runs the risk of a selloff.
The consensus rating on INFY stock sits at “Hold,” with the mean price target of $11.47 indicating potential downside of about 10% from current levels.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.