Why Open Text Corp. Is up Over 3%

Open Text Corp. (TSX:OTEX)(NASDAQ:OTEX), one of the world’s leading providers of enterprise information management (EIM) solutions, announced its fourth-quarter earnings results after the market closed yesterday, and its stock has responded by rising over 3% in early trading.

Let’s take a closer look at the quarterly results and the fundamentals of its stock to determine if we should be long-term buyers today.

A very strong quarter of double-digit growth

Here’s a quick breakdown of 10 of the most notable statistics from Open Text’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Cloud services and subscription revenues US$183.64 million US$156.62 million 17.2%
Customer support revenues US$287.8 million US$192.97 million 49.1%
Licensing revenue US$123.5 million US$86.13 million 43.4%
Professional services and other revenues US$68.62 million US$48.08 million 42.7%
Total revenues US$663.55 million US$483.80 million 37.2%
Adjusted operating income US$219.93 million US$158.1 million 39.1%
Adjusted operating margin 33.1% 32.7% 40 basis points
Adjusted EBITDA $237.0 million $173.09 million 36.9%
Adjusted net income US$159.17 US$119.75 32.9%
Adjusted earnings per share (EPS) US$0.60 US$0.45 33.3%

Should you buy Open Text today?

It was a fantastic quarter overall for Open Text, and it capped off a very strong year for the company, in which its revenues increased 25.6% to US$2.29 billion, its adjusted EBITDA increased 18% to US$792.5 million, and its adjusted EPS increased 14.1% to US$2.02. Its fourth-quarter and full-year results also beat or met analysts’ expectations, which called for adjusted EPS of US$0.58 on revenue of US$662.2 million and adjusted EPS of US$2.00 on revenue of US$2.29 billion, respectively.

With all of this being said, I think the market has reacted correctly by sending Open Text’s stock higher today, and I think it still represents a great investment opportunity for the long term for three primary reasons.

First, it’s one of the best growth stocks in its industry. Open Text grew its revenues by 25.6% and its adjusted EPS by 14.1% in fiscal 2017, and analysts expect strong growth going forward, with current estimates calling for revenue growth of 16.3% and adjusted EPS growth of 22.8% in fiscal 2018, and revenue growth of 5.6% and adjusted EPS growth of 9.7% in fiscal 2019.

Second, it’s undervalued based on its growth. Open Text’s stock currently trades at just 17.1 times fiscal 2017’s adjusted EPS of US$2.02, only 14 times the consensus analyst estimated of US$2.48 for fiscal 2018, and a mere 12.7 times the consensus analyst estimate of US$2.72 for fiscal 2019, all of which are inexpensive given its aforementioned earnings-growth rates and its estimated 15.9% long-term growth rate.

Third, it’s a great dividend-growth stock. Open Text currently pays a quarterly dividend of US$0.132 per share, equal to US$0.528 per share annually, which gives it a 1.5% yield. A 1.5% yield is far from high, but it’s very important to note that the company’s 14.8% dividend hike in May has it on pace for fiscal 2018 to mark the fifth consecutive year in which it has raised its annual dividend payment, and I think its very strong financial performance will allow this streak to continue into the 2020s.

With all of the information provided above in mind, I think Foolish investors should consider initiating long-term positions in Open Text today.

The Next Canadian Superbrand You’ve Never Heard of...

This small-cap stock is “Hidden in Plain Sight!” It’s flying under the radar and is being touted as a “royalty collector” by several of our top Canadian analysts.

Right now you aren’t on the list to receive our formal “buy recommendation”, so don’t delay – simply click here to enter your email address and discover how you can access the exclusive report.

Fool contributor Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of Open Text.  OPen Text is a recommendation of Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.