Is Open Text’s Valuation Justified After Cloud Expansion and Recent Price Swings?

• Wondering if Open Text stock is actually a bargain, or if the recent buzz is just noise? You are not alone. We are diving right into what matters for its value.
• While Open Text shares are up an impressive 27.4% year-to-date and have delivered 26.1% over the past 12 months, there has been some volatility lately with a 5.0% dip in just the past week.
• Recent headlines have been filled with Open Text’s strategic moves in digital transformation and cloud expansion, especially its partnerships and acquisitions that are capturing investor attention and sparking discussions about long-term growth.
• On our valuation checklist, Open Text scores 5 out of 6 for being undervalued. This is a solid result by any standard, but let’s look deeper at how this is calculated and why the smartest investors go beyond standard checklists.

Open Text delivered 26.1% returns over the last year. See how this stacks up to the rest of the Software industry.

Approach 1: Open Text Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and discounting them back to today’s dollars. In Open Text’s case, the DCF uses a two-stage Free Cash Flow to Equity method and takes into account current performance alongside reasonable growth expectations.

Open Text’s latest twelve months generated $913 Million in Free Cash Flow. Analysts expect this figure will continue to grow steadily. By 2027, projections show annual Free Cash Flow reaching approximately $1.03 Billion. Although analysts typically provide five-year forecasts, Simply Wall St extends these insights with carefully extrapolated figures, suggesting Free Cash Flow could approach $1.6 Billion by 2035.

The DCF valuation model calculates Open Text’s intrinsic value at $70.99 per share. Compared to the current market price, this implies a 49.3% discount, indicating that Open Text stock is currently significantly undervalued based on expected future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Open Text is undervalued by 49.3%. Track this in your watchlist or portfolio, or discover 861 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Open Text.

Approach 2: Open Text Price vs Earnings (PE Ratio)

For profitable companies like Open Text, the Price-to-Earnings (PE) ratio is a widely used and suitable metric for valuing stocks because it focuses directly on earnings performance, which is a key driver of long-term value. Investors favor the PE ratio as it is straightforward and reflects how much the market is willing to pay for each dollar of a company’s earnings.

However, what qualifies as a “fair” PE ratio can vary. Companies expected to grow rapidly or with lower risk typically trade at higher PE ratios, while slower-growing or riskier companies often deserve a lower multiple. This means that simply comparing Open Text’s PE ratio to others must always be considered alongside factors such as future earnings growth, profit margins, and risk profile.

Currently, Open Text is trading at a PE ratio of 18.2x. This is well below both the industry average of 33.5x and the peer group average of 37.2x. While those benchmarks provide context, Simply Wall St goes further by computing a “Fair Ratio” of 35.1x for Open Text, which is an estimate tailored to its expected earnings growth, industry, profit margins, market cap, and specific company risks.

The Fair Ratio provides a deeper perspective than industry or peer comparisons, as it blends diverse factors that actually drive justified valuations. Because Open Text’s current PE ratio of 18.2x is significantly lower than its Fair Ratio of 35.1x, the company’s shares appear to be undervalued on this basis as well.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1407 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Open Text Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a simple yet powerful way to connect your perspective—the story you believe about a company’s future—with financial forecasts and an estimated fair value. Instead of relying only on standard ratios, Narratives let you map real-world business drivers like Open Text’s AI innovations, cloud partnerships, and margin improvements directly to key numbers such as revenue, profit margins, and earnings projections.

This approach bridges the gap between a company’s story and its numbers, giving you a clear, customized sense of fair value based on your assumptions. Narratives are easy to use and accessible to everyone on Simply Wall St’s Community page, a platform already trusted by millions of investors globally. They help you make timely buy or sell decisions by comparing your Fair Value estimate to the current share price, and they update automatically whenever important news or earnings are released.

For example, some investors see Open Text’s expanding AI integration and cloud pipeline fueling long-term growth, justifying a bullish fair value that is much higher than consensus. Others focus on restructuring risks or legacy transitions and arrive at a more cautious, lower fair value, so no matter your view, Narratives put you in control of your investment decisions.

Do you think there's more to the story for Open Text? Head over to our Community to see what others are saying!

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.

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