Can Model N Inc (NYSE:MODN) Compete With Tech Giant Peers?

Model N Inc (NYSE:MODN), is a US$520.3m small-cap, which operates in the software industry based in United States. The past two decades have experienced unprecedented changes in technology, and the next decade looks equally drastic. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 22.3% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in tech companies? Today, I will analyse the industry outlook, as well as evaluate whether Model N is lagging or leading its competitors in the industry.

See our latest analysis for Model N

What’s the catalyst for Model N's sector growth?

Despite all the opportunities, tech companies still face a host of challenges, including coping with an increasingly burdensome global regulation. Since the regulatory environment is unlikely to become less complex, organizations will need to address the constantly evolving rules for governing privacy, security and handling of data, as well as cybersecurity issues. In the past year, the industry delivered growth of 9.7%, though still underperforming the wider US stock market. Model N leads the pack with its impressive earnings growth of 12.2% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Model N poised to deliver a 48.8% growth over the next couple of years compared to the industry's 22.3%. This growth is a median of profitable companies of 25 Software companies in US including SeaChange International, Symantec and Avaya Holdings. This growth may make Model N a more expensive stock relative to its peers.

Is Model N and the sector relatively cheap?

The software tech sector's PE is currently hovering around 51.23x, above the broader US stock market PE of 19.8x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 12.5% on equities compared to the market’s 10.7%. Since Model N’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Model N’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Model N’s industry-beating future is a positive for investors. If Model N has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the tech industry. However, before you make a decision on the stock, I suggest you look at Model N's fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has MODN's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Model N? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.