OpenText Stock: Buy, Sell, or Hold in 2025?

OpenText is a TSX tech stock which trades at a cheap multiple while offering a tasty yield to shareholders in January 2025.

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Valued at a market cap of $10.66 billion, OpenText (TSX:OTEX) went public in June 1998. Since its initial public offering, the TSX stock has returned 3,460% to shareholders after adjusting for dividend reinvestments. In this period, the TSX index gained around 600%.

However, in the past decade, OTEX stock has returned just 37% to shareholders while the TSX index has more than doubled. So, let’s see if it makes sense to buy, sell, or hold OpenText stock at the current valuation.

Is OpenText stock a good buy?

OpenText is a Canadian software company that specializes in enterprise information management solutions. It develops software that helps organizations handle digital content and data within and outside their networks. OpenText’s comprehensive platform includes content services for managing documents, security solutions for cyber threat protection, digital investigation tools for forensics, and business network capabilities for data management. It also provides cloud services, artificial intelligence (AI) and analytics tools, and digital experience platforms.

OpenText has partnered with major technology companies like SAP, Alphabet’s Google Cloud, and Microsoft, serving various organizations, from enterprise-level companies to government agencies.

In the fiscal first quarter (Q1) of 2025 (ended in September), OpenText reported revenue of US$1.27 billion, down 11% year over year. While the company divested its high-margin AMC business, it reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of 35%. Moreover, OpenText’s cloud business continued its growth trajectory as the segment reported its 15th consecutive quarter of organic growth. In fiscal Q1, cloud sales rose by 1.3% to US$457 million. Further, enterprise cloud bookings grew by 10% year over year and are up 53% in the past three years.

OpenText secured significant customer wins in Q1 across multiple sectors, including logistics and telecom. It closed 38 deals worth over US$1 million and expects to end fiscal 2025 with total sales between US$5.3 billion and US$5.4 billion, indicating stronger performance in the year’s second half. Comparatively, OpenText reported sales of US$5.8 billion in fiscal 2024.

In the near term, OpenText expects the launch of its Titanium X platform, new go-to-market investments, expanding partner contributions, and enhanced customer service investments to drive sales.

Is OTEX stock undervalued?

Company chief executive officer Mark Barrenechea emphasized a strategic focus on AI integration, security enhancement, and multi-cloud capabilities, which should help drive enterprise demand in the future.

Over the next three years, OpenText is expected to allocate over US$400 million towards capital expenditures, which will help it increase future earnings and cash flow.

The stock’s underperformance has meant it offers shareholders a forward dividend yield of 3.7%, given its annual dividend payout of $1.05 per share. Additionally, these payouts have more than tripled in the last decade, enhancing the yield at cost significantly.

While OpenText’s sales remain under pressure, analysts expect adjusted earnings to expand from US$3.66 per share in fiscal 2025 to US$4.6 per share in 2027. Bay Street also expects free cash flow to double from US$600 million to US$1.2 billion in this period. So, if the TSX tech stock is priced at 15 times trailing earnings, it should trade around $69 in early 2028, indicating an upside potential of over 100% from current levels.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.

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