What Does Open Text Corporation's (NASDAQ:OTEX) Share Price Indicate?

By
Simply Wall St
Published
April 13, 2022
NasdaqGS:OTEX
Source: Shutterstock

Open Text Corporation (NASDAQ:OTEX) received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$47.93 at one point, and dropping to the lows of US$40.91. 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$42.25 reflective of the actual value of the large-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's the opportunity in Open Text?

Good news, investors! Open Text is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’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 23.11x is currently well-below the industry average of 36.47x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Open Text’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What kind of growth will Open Text generate?

earnings-and-revenue-growth
NasdaqGS:OTEX Earnings and Revenue Growth April 13th 2022

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 grow by a double-digit 19% over the next couple of years, the outlook is positive 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? Since OTEX is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on OTEX for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy OTEX. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Open Text (of which 1 can't be ignored!) you should know about.

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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