Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued winner.

| More on:
The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

To look at the share price of OpenText (TSX:OTEX), investors might think it’s been having a rough year. Shares are down about 22% from 52-week highs as of writing, though up slightly in the last year. Even so, this could mean there is an opportunity for long-term investors.

In fact, OpenText stock has had a solid performance throughout 2023, thus making it a compelling stock to watch as we head into 2025. So, let’s look at whether it’s a buy, sell, or hold coming into next year.

Created with Highcharts 11.4.3Open Text PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Into earnings

First, let’s look at the earnings for OpenText stock. Its recent earnings report showed annual revenues of $5.8 billion, marking an impressive growth rate of 28%. The cloud segment, which remains a key part of OpenText’s strategy, saw growth of nearly 10%, thus signalling strong demand for its cloud services, especially after the integration of Micro Focus, one of its recent acquisitions. This deal has boosted OpenText’s annual recurring revenues and added significantly to its customer support services, a segment that grew over 114% year-over-year​.

Despite this positive momentum, the stock hasn’t been without challenges. For the fiscal year ending June 2024, OpenText’s GAAP-based net income decreased significantly, dropping 62% from the previous year. OpenText stock cited acquisition-related costs as a reason for this decline, highlighting some of the financial strain that comes with large-scale integrations like Micro Focus. Nonetheless, adjusted earnings per share (EPS) of $0.91 in the most recent quarter showed a 13.8% improvement, demonstrating resilience​.

Looking forward to November 2024, analysts expect another strong showing. Investors will be watching the company’s earnings on November 4, where OpenText is expected to continue capitalizing on its cloud services, artificial intelligence (AI) initiatives, and partnerships with major tech firms like Google Cloud and Microsoft. Analysts predict EPS to grow by around 13%, signalling confidence in OpenText’s long-term potential as the company deepens its focus on AI-driven information management solutions​.

Where does it fall?

From an analyst perspective, many experts hold a “buy” rating on OpenText. Some even see potential for the stock to outperform given its low forward price-to-earnings ratio of 9.4. This compares favourably to peers in the information management sector. The stock is also yielding a dividend of 3.1%, making it attractive for income investors​.

However, there are some risks to keep in mind. The company’s debt-to-equity ratio stands at a high 159%. And while its cash flow remains solid, its leverage might be a concern if future growth doesn’t materialize as expected. Plus, its revenue growth has slowed in the latest quarters, with some declines in total revenue compared to earlier in the fiscal year​.

Given this, OpenText stock presents itself as a hold for cautious investors. The stock has room for growth but is not without risks. If you’re already holding OpenText, its long-term outlook, bolstered by recurring revenues and AI investments, suggests continued stability. For new investors, waiting until after the November earnings report could provide more clarity on whether the company can sustain its growth trajectory.

Bottom line

OpenText stock is a well-positioned company in the growing information management space, with AI and cloud services acting as growth drivers. But with some challenges around profitability and high debt levels, it might be wise to adopt a cautious approach – either holding onto existing shares or waiting for more consistent earnings before making any significant buy decisions.

Should you invest $1,000 in OpenText right now?

Before you buy stock in OpenText, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and OpenText wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has positions in Microsoft. The Motley Fool recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Tech Stocks

A shopper makes purchases from an online store.
Tech Stocks

Buy the Dip on the Return of Recession Stocks?

If a recession comes back, there are some stocks that could fair well afterwards. And this is one of the…

Read more »

data center server racks glow with light
Tech Stocks

April Opportunity: Where I’d Invest $7,000 in These 3 Tech Stocks Right Now

These tech stocks have solid growth potential and are trading at discounted valuation, providing a solid buying opportunity in April.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

If I Could Only Buy and Hold a Single U.S. Stock, This Would Be It

You don’t need 40 different stocks to build wealth. A few good ones can boost your portfolio, and this U.S.…

Read more »

cloud computing
Tech Stocks

2 Top Canadian Information Technology Stocks to Buy Right Now

These two Canadian information technology stocks are bargains amid the downturn in the broader market for long-term investors.

Read more »

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

The Only 2 AI Stocks You’ll Need for Long-Term Growth

Here are two top Canadian tech stocks that could help you benefit from surging demand for AI technology and infrastructure.

Read more »

calculate and analyze stock
Tech Stocks

The Canadian Stock I’d Buy Every Time it Takes a Dip

The tariff wars have created a buy-the-dip opportunity for value investors. Here is a Canadian stock that is a buy…

Read more »

jar with coins and plant
Tech Stocks

The Smartest Growth Stock to Buy With $1,000 Right Now

Here's a fundamentally solid, dividend-paying growth stock you can buy on the dip now to hold for the long term.

Read more »

e-commerce shopping getting a package
Tech Stocks

Shopify Stock Looks Like a Buying Opportunity Today

Let's dive into the pros and cons of owning e-commerce platform provider Shopify (TSX:SHOP) in this current environment.

Read more »