Yahoo Finance OpenText Stock Plunges 19%, But Investors Are Missing This Key Growth Metric
Written by Amy Legate-Wolfe at The Motley Fool Canada
OpenText (TSX:OTEX) earnings provided little in the way of exciting investors during their third quarter report. In fact, soft full-year outlooks for 2025 led to a drop in share price by 19%.
However, despite hitting all targets, there is still some momentum underway. Today, let’s go over what investors might be missing in terms of OpenText stock and why it could still be a great time to buy.
What happened?
OpenText stock reported earnings that fell in line with estimates, with a strong overall third quarter. Total revenue came in at $1.45 billion, with annual recurring revenue at $1.15 billion as well. Cloud revenue hit $455 million, with free cash flow of $348 million as well.
Part of the growth came from the divestiture of assets that added a surge of cash to the company’s bottom line. Now that it’s complete, the company hopes to be more flexible, and expects to start up its merger and acquisition strategy once more after the focus on organic growth.
“OpenText is focused on growth, profitability and the future of Information Management. The divestiture of our AMC/Mainframe business is now complete, and we are using the net proceeds to repay $2 billion of debt,” said chief executive officer (CEO) mark J. Barrenechea. “With our increased capital flexibility, we are pleased to announce a new capital allocation program, continuance of our dividend program, and a new $250 million share buyback.”
What investors are missing
One thing I like to do when looking at earnings is to look at momentum. Already I like the fact that OpenText stock is putting that $2 billion towards debt. But more than that, the company has been seeing rapidly expanding organic growth as well as growth across much of its earnings quarter after quarter.
For instance, during the first quarter of 2024, total revenue was $1.43 billion, with annual recurring revenue of $1.15 billion. Cloud revenue was $451 million, with free cash flows of $10 million.
By the second quarter, this had improved to record results. Total revenue hit $1.54 billion, with annual recurring revenue holding steady at $1.15 billion as well. Cloud revenue came down slightly to $450 million, with free cash flows surging to $305 million.
OpenText stock has been focused on bringing down debt and increasing organic growth. This has left overall performance steady, though revenue did come down in the last quarter. Recurring revenue, however, remained intact, with an increase in cloud revenue and free cash flow.
Bottom line
Overall, OpenText stock has done a solid job in strengthening its balance sheet so it can get back to what it does best. That’s acquire businesses, and attract large clients — clients such as Alphabet and Ulta Beauty. The company remains a “buy” from most analysts., especially those who have an eye towards the future.
What’s more, the company is now focusing on growth once more. This should help create a demand for shares, especially when the company reports its full-year earnings in the next few months. So, keep an eye on OpenText stock, as it’s one of the tech stocks offering recurring revenue and could set investors up for life.
The post OpenText Stock Plunges 19%, But Investors Are Missing This Key Growth Metric appeared first on The Motley Fool Canada.
Should you invest $1,000 in OpenText right now?
Before you buy stock in OpenText, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and OpenText wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $15,578.55!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 3/20/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2024
