OpenText (TSX:OTEX) has been through plenty of evolutions over its three-decade history, but right now it’s leaning hard into the cloud era. Thus showing that a Canadian enterprise software company can still make waves in a field dominated by U.S. giants. Yet the tech stock is still undervalued. So, let’s get into why it could be one massive opportunity waiting to happen.
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What happened?
The past year also showed how OpenText balances transformation with shareholder returns. It returned a record $683 million to investors through dividends and buybacks, announced a 5% dividend increase for fiscal 2026, and approved a new $300 million share-repurchase program. That’s not something you see from every tech stock, especially those in investment-heavy transitions.
The business still generated $687 million in free cash flow last year, even after investing in cloud, security, and artificial intelligence (AI) initiatives. And while GAAP (generally accepted accounting principles) net income dropped to $436 million, the tech stock maintained a hefty adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 34.5%, highlighting the profitability of its model.
Fiscal 2025 wasn’t without challenges. Revenue fell 10% year over year, largely due to a major divestiture. Yet the tech stock’s core cloud business kept moving forward. Cloud revenues grew 2% for the year and have now logged 18 straight quarters of organic growth. More importantly, cloud bookings jumped 32% in the fourth quarter, showing strong demand for its artificial intelligence (AI)-powered Titanium X platform.
Looking ahead
What’s driving the current optimism is how the tech stock’s offerings are lining up with market trends. The Titanium X platform isn’t just about migrating workloads to the cloud; it layers in AI-driven automation, data management, and cybersecurity tools. Those capabilities are increasingly in demand as enterprises wrestle with remote work, complex supply chains, and rising cyber threats. High-profile wins in the past quarter reinforce that OpenText can compete for big-ticket contracts against global players.
Still, the numbers show some pressure points. Customer support revenue fell 14% in fiscal 2025, a sign that legacy on-premise and maintenance contracts are in decline. That’s expected in a cloud transition, but it does mean the pace of cloud growth has to pick up to offset those losses. Management’s guidance for fiscal 2026 of 1% to 2% total revenue growth and 3% to 4% cloud growth suggests this will be more of a steady climb than a hockey-stick rebound. Investors should also watch debt levels, which sit at $6.65 billion, leaving less flexibility if the macro environment worsens.
Bottom line
The market hasn’t exactly rewarded the tech stock lately. Shares are down nearly 5% over the past year, even as the S&P 500 has posted double-digit gains. That could leave room for upside if the tech stock can hit its growth targets and show faster adoption of its new AI-enhanced cloud tools. The valuation, with a forward price-to-earnings ratio of about seven, is also modest for a tech stock with strong margins and recurring revenue.
OpenText has proven it can adapt before, from content management in the early internet era to information management today. Its latest reinvention in the cloud era could set it up for a new growth phase, provided it can keep the momentum in bookings translating into revenue. For investors willing to be patient, this is a Canadian tech innovator worth watching as it navigates its next chapter in a fast-changing industry.
