Is Now An Opportune Moment To Examine Open Text Corporation (NASDAQ:OTEX)?

Open Text Corporation (NASDAQ:OTEX), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$40.78 and falling to the lows of US$30.13. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Open Text's current trading price of US$30.93 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Open Text’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Open Text

What Is Open Text Worth?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 49.58x is currently trading slightly above its industry peers’ ratio of 43.03x, which means if you buy Open Text today, you’d be paying a relatively reasonable price for it. And if you believe Open Text should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Open Text’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Open Text?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Open Text. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? OTEX’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at OTEX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on OTEX, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for OTEX, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Open Text as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Open Text (1 doesn't sit too well with us) you should be familiar with.

If you are no longer interested in Open Text, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.