This Canadian Stock Could Leave the Bargain Bin After its Next Earnings Report

OpenText looks like a beaten-down Canadian tech stock where expectations may be worse than the business reality.

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 August 28, 3:30 pm EDT

| More on: OTEX

Key Points

OpenText shares are down about 41% from the 52-week high, but recent results show improving cloud momentum.
Cloud revenue and especially cloud bookings are growing, while margins and free cash flow remain strong.
The big risks are AI disruption and debt, so the next few quarters must confirm sustainable growth.

A stock can spend months being treated like yesterday’s leftovers even while the business underneath it starts improving. Yet one strong earnings report can suddenly turn “cheap for a reason” into “why didn’t I buy that earlier?”

That’s why beaten-down stocks get especially interesting when expectations are already low. An earnings report doesn’t need to be spectacular to trigger a recovery. When investors have priced in shrinking sales, weak margins, or technological disruption, merely proving things aren’t getting worse can be enough. Add improving earnings or an unexpected growth pocket, and the valuation investors are willing to pay can change surprisingly quickly.

That brings me to one of the stranger bargains sitting in Canadian tech stocks today.

Investor reading the newspaper — Source: Getty Images

OTEX

OpenText (TSX: OTEX) shares recently traded around $33, down roughly 41% from its 52-week high near $56. That isn’t a small wobble. It’s the sort of decline that suggests investors have serious doubts about where the business goes next.

Artificial intelligence (AI) is a big reason for the nerves. OpenText stock sells software that helps companies manage, protect, organize, and use enormous amounts of enterprise data. That includes content management, cybersecurity, IT operations, and business networks. AI could threaten portions of traditional enterprise software, so investors understandably want proof that OpenText can become part of the AI transition rather than roadkill beside it.

Recent results suggest writing the obituary might be a little premature. OpenText stock reported fourth-quarter fiscal 2026 revenue of US$1.35 billion, up 2.9% year over year. Cloud revenue increased 6% to US$503 million, while enterprise cloud bookings jumped 24.1%. For the full year, cloud revenue reached nearly US$2 billion, and enterprise cloud bookings climbed 22.5%. That looks considerably less like a business being made obsolete.

Looking ahead

Management is calling fiscal 2027 a foundation year, with new Chief Executive Officer Ayman Antoun focused on expanding sales capacity, partnerships, and investment in OpenText stock’s core products. Those aren’t particularly exciting words on their own. Investors have heard plenty of “transformation” speeches that eventually transformed shareholder money into considerably less shareholder money.

The numbers give this one more credibility. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin reached 37.6% in the latest quarter, while adjusted earnings per share (EPS) rose 26.8% to US$1.23. OpenText stock also generated US$808 million in free cash flow during fiscal 2026.

The next earnings report, therefore, has a fairly straightforward job. Investors need evidence that core revenue and cloud growth can continue while management maintains those juicy margins. Another quarter of stronger cloud bookings, improving organic growth, or earnings ahead of expectations could give the market a reason to reconsider just how cheap this stock deserves to be.

Where it could go

OpenText stock currently trades around nine times trailing GAAP earnings. That’s a pretty modest multiple for a profitable software company generating substantial recurring revenue, particularly if its cloud business keeps expanding. I wouldn’t buy expecting an immediate trip back to $56. Yet the current valuation means OpenText stock doesn’t need explosive growth to make today’s price look overly pessimistic.

But that doesn’t make this a perfect situation. The biggest risk is also the most obvious one. AI could genuinely disrupt traditional enterprise software pricing and make some OpenText stock products less valuable. Annual recurring revenue (ARR) grew only 0.2% in the latest quarter, so this isn’t secretly a hyper-growth company.

Debt also deserves attention after years of acquisition-fuelled expansion, although management continues prioritizing cash generation and deleveraging. That makes the next few quarters important.

Bottom line

Investors buying stocks in Canada don’t need to guess the exact day sentiment turns. The opportunity comes from finding a company where expectations look considerably worse than the underlying results.

OpenText stock is already showing improving cloud bookings, strong margins, growing earnings, and plenty of cash flow. One more strong earnings report could make the bargain bin look like a rather temporary address.