OpenText Stock: Down 27%, Buy Now for Pure Long-Term Perfection

OpenText stock may have dropped after earnings, but according to its CEO, future growth is just getting started.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published February 13, 2025 4:20 pm EST

Over the last year, OpenText (TSX: OTEX) has been focusing on restructuring and strengthening its operating platform. Yet, in an interview with chief executive officer and chief technology officer Mark Barrenechea, today, the company is now prioritizing growth, artificial intelligence (AI) innovation, and shareholder returns. However, despite reporting strong financials, OpenText stock is still down by 27% in the last year, possibly providing a great entry point for investors.

chart reflected in eyeglass lenses — Source: Getty Images

Looking back

Barrenechea explained that OpenText stock’s focus in 2024 was on refining its operating platform, particularly after divesting AMC, which removed US$500 million in revenue. This move allowed OpenText to invest in higher-margin businesses. Yet, it also required a transition period to rebuild and stabilize earnings. “We carved out half a billion in revenue, 60% invested in a high-margin business. And we wanted to backfill that margin into the business,” Barrenechea said in an interview with Motley Fool. “That was a big task … and I think our first half results demonstrate that.”

With this restructuring largely completed, OpenText stock is now shifting gears toward growth. “Now our new number one priority is growth,” Barrenechea stated. “Coming into the year, we stated that our priority is organic growth, margin expansion, and capital return.” The company expects to return to organic revenue growth by the fourth quarter — a significant milestone that Barrenechea believes will strengthen investor confidence.

Driving growth

Despite OpenText’s improved operating performance, shares dropped following the earnings report. Capital returns remain a key priority for OpenText stock, with the company committing 50% of its free cash flow to dividends and share buybacks. “The more free cash flow we generate, the more we’re going to return to investors,” Barrenechea explained. “Our strategy is to keep getting more efficient, generating higher free cash flow from higher revenues, and thus returning more and more to our investors.” Over the past three quarters, OpenText stock has already deployed US$300 million, repurchasing and cancelling 10 million shares. Looking ahead, the company expects to increase capital returns as its free cash flow expands.

A significant driver of OpenText’s future growth is Titanium X, the company’s next-generation cloud platform that integrates AI and multi-cloud capabilities. While already contributing to cloud bookings, Barrenechea expects Titanium X to become a major revenue driver by fiscal 2026. “To get our AI platform, you have to be on Titanium X,” he stated, noting that existing customers will need to upgrade to access its full benefits.

The platform is already seeing success with major customers, including Nestlé, which has signed on for large-scale software-as-a-service (SaaS) deals. Barrenechea believes these early wins are an indicator of strong demand. “If we put all the headwinds aside … we are growing in Q4 organically,” he said. “Titanium X will be the big driver in fiscal 2026.”

The road ahead

With AI adoption increasing across industries, OpenText stock is positioning itself to differentiate itself from competitors. Barrenechea outlined three key ways the company will stand out. Making AI practical and seamlessly embedded into products at a lower cost, unlocking the value of client data, and developing standalone AI-driven solutions that will provide additional differentiation and value for customers. “We have a couple of unique, differentiated offerings in development,” he hinted, suggesting that more AI-related announcements could be on the horizon.

Despite macroeconomic concerns, OpenText stock remains confident in its positioning, particularly in North America. Barrenechea noted that 60% of the company’s revenue comes from the United States, which he sees as an advantage. “We applaud the investments in the U.S. and support for medium-sized businesses,” he said. However, he acknowledged that currency fluctuations, particularly the strengthening U.S. dollar, are a factor to watch. “The euro has been down 8% since the election, and we have $2 million in revenue per year in Europe denominated in euros, so we’re watching currency.”

Bottom line

Looking ahead, OpenText stock is focused on accelerating growth, increasing shareholder returns, and scaling its AI-driven cloud platform. With a strong cash flow position, significant investments in Titanium X, and a commitment to returning capital to investors, the company is setting itself up for long-term success. The key question for investors is whether these initiatives will translate into a rebound in OpenText’s stock price in the coming quarters. For Barrenechea, that answer seems to be a resounding “yes.”