OpenText Corp (TSX:OTEX) inventory went on a shock rally in August, rising 16% when the S&P/TSX Composite Index gained solely 5.7%. It was a interval of great outperformance for OTEX, considered one of Canada’s best-known and oldest software program firms. Not too long ago, the corporate acquired into synthetic intelligence (AI) in a significant approach, investing appreciable sums of cash in integrating generative AI into its apps. Traders appear to suppose that the funding is paying off, because the inventory has been rallying this 12 months (following some much less profitable performances in years previous).
That’s to not say that AI is the one factor that’s driving good points for OTEX. On the contrary, the corporate has put out quite a lot of excellent news in different classes as effectively. For instance, it lately elevated its dividend and introduced a brand new $300 million buyback program. These shareholder-friendly strikes piqued investor curiosity and certain helped get OTEX inventory transferring.
The query is whether or not OTEX inventory continues to be a purchase as we speak. Though the corporate’s latest bulletins have been bullish catalysts, OpenText doesn’t precisely have a stellar observe document of long-term development. In actual fact, the corporate seems to have been getting smaller in latest quarters — though the longer-term developments are nonetheless beneficial. On this article, I’ll discover OpenText’s AI investments, wealth returns and monetary efficiency, so you possibly can gauge whether or not it’s a match on your portfolio.
AI investments
Essentially the most thrilling factor that’s been occurring at OpenText Corp lately is the corporate making large investments in generative AI. As a content material administration and textual content evaluation firm, OpenText Corp can simply combine AI into its present choices. By way of its Aviator AI (TM) service, it presents enterprise analytics, textual content evaluation, content material creation, and different typical issues that AI information info administration providers are inclined to have. It’s a reasonably complete suite of AI information evaluation providers, however at a look, I’m not precisely certain what differentiates OTEX’s choices from these of different data administration firms.
Returns of wealth
The opposite large catalyst for OTEX lately was its return of wealth to shareholders. After its most up-to-date quarterly report, the corporate hiked its dividend and introduced a $300 million buyback program. OTEX has an $11.7 billion market cap, so the $300 billion buyback may probably transfer the needle and set off value appreciation for the corporate.
Current efficiency
OTEX’s latest monetary efficiency has been blended. Within the trailing 12-month interval, the corporate shrank, with income down 10.5%, earnings down 3.6% and free money move (FCF) down 9.5%. It wasn’t the perfect exhibiting, though the corporate’s development charges in these metrics have been comfortably optimistic over the past three-, five-, and 10-year intervals.
OTEX scores higher on profitability, with an 8.4% internet margin, 18% FCF margin, and a 0.7% return on fairness — no points right here.
The underside line
At as we speak’s value, OTEX trades at simply 8.6 occasions earnings. By tech sector requirements, it’s virtually grime low-cost. Nevertheless, if the pattern of the enterprise shrinking continues, then the inventory will sometime not look to have been such a cut price at as we speak’s value. Total, I’m not serious about shopping for OTEX inventory.
