The tech sector in Canada rallied in the second half of 2024, and even though it did not have a smooth bullish trajectory, the index climbed significantly. Many tech stocks experienced massive gains, but OpenText (TSX:OTEX) wasn’t one of them. A bearish stock in a bullish sector is usually not a “safe” pick, but there are exceptions, and OpenText might be one of them.
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An information management company
OpenText offers solutions and tools specific to information management, which makes artificial intelligence (AI) augmentation and enhancement ideal since AI models need data to thrive. The company hasn’t neglected this area and has augmented many of its services with AI. AI is even one of its two primary solution domains.
The company has a presence in 180 countries and over 120,000 customers around the globe. It also has hundreds of connectors, allowing organizations to manage and process their data through the OpenText cloud and benefit from its various services.
Considering its services and AI strengths, the stock’s weak performance is concerning. While weak financials might seem like a reason for the slump, a larger reason might be that AI tools have become more commonplace in the last few years, some of which may replicate the features and capabilities of what OpenText can do for its clients.
However, there is reason to consider this stock for its eventual recovery and, hopefully, a powerful bull market phase in the coming years.
OpenText stock
One thing this stock has going for it is that the bulk of it (over 78%) is held by institutions and not individual investors, which might provide it with a bit of stability. However, one negative factor here is that several insiders have dumped their stocks in the last six months. The most significant issue shaking the investors’ confidence in the company is declining revenues.
This is one area the company has to work on. A decent revenue boost in the next year alone can be quite significant for the investors’ morale. Its current discounted state and a price-to-earnings ratio of just 16.3 make it quite attractive if a recovery is plausible. You also have the chance to lock in a decent 3.6% yield for this aristocrat. The payout ratio is healthy despite its financial troubles.
Foolish takeaway
This discounted tech stock is worth buying hand over fist if you believe in its eventual financial recovery. Its old services are gaining more traction, and any of its new solutions increasing the company’s overall client pool can have a significant positive impact on its revenues. However, if you want to play it safe, waiting till at least next quarter’s results might be prudent.
