I’m about to dive into some juicy information on Open Text Corporation (NASDAQ:OTEX), a company that’s all about digital transformation software. This is some high-tech stuff, my friends. Now, I recently gave my thoughts on OTEX and I gotta say, I’m feeling pretty neutral about it [Hold]. Why, you ask? Well, with the potential for a higher cost of capital hanging over our heads for a while, the folks at Open Text better be careful not to make any missteps. You see, when a company is swimming in debt like OTEX, the market can be a real harsh mistress.
Now, let me give you a little rundown on OpenText. These guys are based up north in Canada and they specialize in information management software and services. They’ve got a whole arsenal of offerings, from content cloud to AI and analytics. It’s like they’ve got all the bases covered. And they’re not just relying on their own sales and marketing efforts to find new customers, oh no. They’ve got strategic partners and solution extension partners to help them reel in the big fish.
But let’s talk numbers, shall we? According to a fancy market research report, the information management market is expected to reach a whopping $223 billion by 2030. That’s some serious cash, my friends. And OpenText is ready to jump in and grab their piece of the pie.
But let’s take a closer look at their financials. The good news is that total revenue has been on the rise, thanks to a fancy acquisition. But operating income has been a bit up and down lately. And here’s something interesting: earnings per share have been all over the place. Things were looking pretty negative in Q2 2023. Yikes.
Now, let’s talk about the elephant in the room: the stock price. Over the past year, OTEX’s stock price has gone up about 22.55%. Not too shabby, right? Well, when you compare it to the iShares Expanded Technology-Software ETF’s rise of 26.79%, it’s not quite as impressive. But hey, at least they’re in the game.
Now, when it comes to the balance sheet, OTEX has got some sweet cash on hand – over a billion dollars, to be exact. But they’ve also got a mountain of debt. We’re talking about nearly $9 billion, folks. That’s no joke. But hey, they’ve been churning out some pretty good free cash flow, so maybe they’ll be able to dig themselves out of that hole.
And now, let’s get down to the nitty-gritty with some valuation and other metrics. I won’t bore you with all the details, but let’s just say that their enterprise value to sales ratio is looking pretty decent at 3.9. And their revenue growth rate? A sweet 28.4%. Not too shabby, OTEX.
Now, here’s where things get interesting. OTEX’s most recent unadjusted Rule of 40 calculation came in at a solid 53.2%. Basically, this means they’re performing pretty damn well, thanks to that fancy Micro Focus acquisition.
But hey, it’s not all rainbows and sunshine for OpenText. They’ve got some challenges ahead, like foreign exchange headwinds and all those pesky macroeconomic risks. And speaking of challenges, their management team better have their wits about them when it comes to integrating Micro Focus. Oh, and they’ve got their eye on AI as a future moneymaker. Smart move, OTEX.
So, what’s my final verdict on Open Text Corporation? Well, I’m in a “show me” mode, my friends. Management needs to prove that they can grow this combined entity organically before I jump on board. And with the market expecting a higher cost of capital for a while, any misstep could be costly for OTEX. So until they show me the goods, I’m remaining neutral [Hold].
Now go forth, my friends, and make your own decisions. But remember, always do your research and stay informed.