OpenText (TSX:OTEX) is one of those weird tech stock cases. And I don’t mean weird bad at all. The tech stock has been around for decades, which is already saying something. During that time, it has gone from being the company to put the dictionary online to a software-as-a-service (SaaS) company offering cybersecurity and agentic artificial intelligence (AI) to enterprise-level companies.
But the question is whether OTEX stock is still a buy? After a transition into the AI space and the sale of Micro Focus, there’s a lot to consider. So let’s get into it.
Into earnings
Let’s jump straight into earnings. The tech stock recently reported its fourth quarter and full-year 2025 report, and there were definitely a few noteworthy moments. Quarterly earnings growth was down 88% year over year, a dramatic drop. Yet it still generates strong cash flow, with operating cash flow hitting US$831 million and leveraged free cash flow at US$944 million. That’s a huge positive given the company also pays a dividend.
But back to that leverage. The tech stock currently has total debt at US$6.7 billion, with cash at US$1.2 billion. So leverage is high, and short-term liquidity is at just one. It’s manageable if cash flow remains strong, but it makes it more vulnerable if hit by an unexpected revenue shock. In any case, it’s clear why there’s been some short interest from investors worried about the earnings decline.
Valuation
So let’s now consider whether the tech stock looks valuable at these levels after recent earnings. The market is pricing a recovery into OTEX as of writing, with a low forward price-to-earnings (P/E) ratio at about 9, and an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EBITDA) around 10. It’s therefore undervalued compared to many software peers out there.
Furthermore, for an established enterprise software vendor, these multiples look downright cheap. However, that “cheapness” comes with real risks from the latest earnings results, high debt, and whether the stock can execute a rebound. Even so, during that wait, investors are treated to a dividend currently around 3% as of writing, with a supportable 64% payout ratio.
Considerations
So let’s put this all together and come to a solid conclusion. OTEX currently has a high debt load, and that’s the single biggest risk. This, therefore, increases sensitivity to interest rates and refinancing. Short-term liquidity is also tight, supported by an operating cash flow that’s strong, but needs to stay that way if the tech stock doesn’t want any further shake-ups.
Basically, OTEX is a turnaround play. It’s not a high-growth cloud tech story. Instead, it’s an enterprise information-management software company with large legacy products. Ones that create meaningful, recurring cash generation to support a modest dividend, though with heavy leverage. It’s therefore a great opportunity for investors who believe earnings will stabilize, debt will be paid, and more free cash flow is coming.
Bottom line
In this case, I would consider OTEX a stock to jump in on if you believe it’s turning around, but perhaps not with a large sum. Instead, consider dollar-cost averaging (DCA) to spread out your risk. To get even more invested, you could then consider reinvesting your dividend contributions from the tech stock. All considered, however, there is a fairly balanced risk and reward from this tech stock, and only time will tell which side wins out.
