Expanding QA And R&D Will Unlock AI Testing Markets

Key Takeaways

• Strategic R&D and sales expansion in quality assurance is expected to drive significant future revenue growth.
  
• Diversifying testing products into non-Qt areas expands market reach, promising potential revenue growth.
  
• Slow sales growth and market uncertainty in key sectors may hinder revenue and profitability, with challenges from cautious customers and currency fluctuations.

Catalysts

Offers cross-platform solutions for the software development lifecycle in Finland, rest of Europe, the Asia Pacific, and North America.

• The company expects that global demand for displaced devices will continue to grow, and with the increasing application of AI, there will be more software to be tested. This could increase revenue as testing services become more essential.
  
• The company is investing in their quality assurance business, particularly in expanding their R&D, marketing, and sales teams, indicating they expect this segment to drive future revenue growth.
  
• Expansion efforts for their testing products into non-Qt areas, like Windows and Java, are anticipated to increase their addressable market significantly, potentially driving revenue growth.
  
• Despite reduced guidance due to current market uncertainties, the company maintains stable renewal rates, and they foresee a smoother second half of the year, which could contribute to stronger earnings performance for that period.
  
• Long-term investments continue as planned, suggesting they do not anticipate further cuts even in a challenging environment, potentially maintaining or enhancing net margins through operational efficiencies and revenue growth in the medium to long term.

Qt Group Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qt Group Oyj's revenue will grow by 14.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.9% today to 28.7% in 3 years time.
• Analysts expect earnings to reach €89.9 million (and earnings per share of €3.54) by about May 2028, up from €54.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.4x on those 2028 earnings, up from 26.6x today. This future PE is greater than the current PE for the GB Software industry at 29.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Qt Group Oyj Future Earnings Per Share Growth

Risks

• Slow net sales growth (4.8%) and market softness in key regions such as Europe and the U.S. could negatively affect future revenue streams.
  
• Increased cautiousness among customers regarding license renewals and new sales can create uncertainty in revenue projections.
  
• Continuation of market uncertainty, particularly in the automotive and industrial automation sectors, may impact revenue growth and financial results in the near term.
  
• Potential supply chain disturbances and long parts lead times could increase operational costs, leading to lower profit margins.
  
• Exposure to currency fluctuations and negative USD developments could impact financial results and profitability.

Valuation

• The analysts have a consensus price target of €89.333 for Qt Group Oyj based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €110.0, and the most bearish reporting a price target of just €78.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €313.1 million, earnings will come to €89.9 million, and it would be trading on a PE ratio of 30.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of €57.25, the analyst price target of €89.33 is 35.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.