Why Open Text Corp. Rallied 2.25% on Wednesday

Open Text Corp. (TSX:OTEX)(NASDAQ:OTEX) rallied 2.25% on Wednesday following its acquisition of Hightail, Inc. Is now the time to buy?

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What?

Enterprise information management solutions provider Open Text Corp. (TSX:OTEX)(NASDAQ:OTEX) watched its NASDAQ-listed shares jump 2.25% on Wednesday following its announcement that it has acquired Hightail, Inc., a leading cloud service for file sharing and creative collaboration.

So what?

Hightail, formerly known as YouSendIt, has approximately 5.5 million customers around the world, including enterprise accounts, paid subscribers, and individual consumers.

Commenting on the acquisition, Mark Barrenechea, Open Text’s vice chairman, CEO, and CTO, stated the following:

“The acquisition of Hightail underscores our commitment to delivering differentiated content solutions in the cloud that enable marketers and creative professionals to share, produce, and securely collaborate on digital content … I am excited about expanding Hightail capabilities as well as integrating Hightail into OpenText Content Suite, Documentum, Core, and Media Management, allowing our customers to seamlessly and securely collaborate with external trading partners and vendors.”

Open Text did not disclose a purchase price or provide any information on when the transaction would be completed, but it did note that the acquisition is “not expected to contribute significant revenue to OpenText’s results for the fiscal third quarter ending March 31, 2018.”

Now what?

I think this is a fantastic acquisition for Open Text for three primary reasons.

First, I think Hightail’s cloud-based solutions will seamlessly integrate into Open Text’s current offerings.

Second, Open Text will have two new and very popular services, file sharing and collaboration solutions, to offer its existing customer base.

Third, Open Text now has 5.5 million new customers, which it will be able to upsell using its vast list of existing products and services.

Even after Wednesday’s +2% pop, Open Text’s stock is down more than 8% since its 12.7% rally following its blowout second-quarter earnings results; I think the stock is a strong buy today, because it’s wildly undervalued at a mere 13.5 times fiscal 2018’s estimated earnings per share of US$2.63 and because it has a solid 1.5% yield with a reputation for dividend growth.

With all of the information provided above in mind, I think Open Text’s stock is heading significantly higher in the weeks, months, and years ahead, so take a closer look and strongly consider making it a long-term core holding.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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.

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