OpenText (TSX:OTEX) is a kind of bizarre tech inventory instances. And I don’t imply bizarre unhealthy at all. The tech inventory has been round for many years, which is already saying one thing. Throughout that point, it has gone from being the corporate to place the dictionary on-line to a software-as-a-service (SaaS) firm providing cybersecurity and agentic synthetic intelligence (AI) to enterprise-level firms.

However the query is whether or not OTEX inventory remains to be a purchase? After a transition into the AI house and the sale of Micro Focus, there’s loads to contemplate. So let’s get into it.

Into earnings

Let’s bounce straight into earnings. The tech inventory lately reported its fourth quarter and full-year 2025 report, and there have been positively a couple of noteworthy moments. Quarterly earnings progress was down 88% 12 months over 12 months, a dramatic drop. But it nonetheless generates robust money move, with working money move hitting US$831 million and leveraged free money move at US$944 million. That’s an enormous optimistic given the corporate additionally pays a dividend.

However again to that leverage. The tech inventory at the moment has whole debt at US$6.7 billion, with money at US$1.2 billion. So leverage is excessive, and short-term liquidity is at only one. It’s manageable if money move stays robust, but it surely makes it extra susceptible if hit by an surprising income shock. In any case, it’s clear why there’s been some brief curiosity from buyers anxious in regards to the earnings decline.

Valuation

So let’s now think about whether or not the tech inventory seems useful at these ranges after current earnings. The market is pricing a restoration into OTEX as of writing, with a low ahead price-to-earnings (P/E) ratio at about 9, and an enterprise value-to-earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) round 10. It’s subsequently undervalued in comparison with many software program friends on the market.

Moreover, for a longtime enterprise software program vendor, these multiples look downright low-cost. Nonetheless, that “cheapness” comes with actual dangers from the most recent earnings outcomes, excessive debt, and whether or not the inventory can execute a rebound. Even so, throughout that wait, buyers are handled to a dividend at the moment round 3% as of writing, with a supportable 64% payout ratio.

Issues

So let’s put this all collectively and are available to a strong conclusion. OTEX at the moment has a excessive debt load, and that’s the one largest danger. This, subsequently, will increase sensitivity to rates of interest and refinancing. Brief-term liquidity can also be tight, supported by an working money move that’s robust, however wants to remain that means if the tech inventory doesn’t need any additional shake-ups.

Mainly, OTEX is a turnaround play. It’s not a high-growth cloud tech story. As a substitute, it’s an enterprise information-management software program firm with massive legacy merchandise. Ones that create significant, recurring money technology to help a modest dividend, although with heavy leverage. It’s subsequently a terrific alternative for buyers who imagine earnings will stabilize, debt might be paid, and extra free money move is coming.

Backside line

On this case, I might think about OTEX a inventory to leap in on when you imagine it’s turning round, however maybe not with a big sum. As a substitute, think about dollar-cost averaging (DCA) to unfold out your danger. To get much more invested, you could possibly then think about reinvesting your dividend contributions from the tech inventory. All thought-about, nevertheless, there’s a pretty balanced danger and reward from this tech inventory, and solely time will inform which aspect wins out.