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Why Open Text (OTEX) Stock Is Climbing Today

NEW YORK (TheStreet) -- Open Text (OTEX) shares are rising, up 8% to $49.76 on Friday, following the release of the company's third quarter earnings report.

The company's board declared a 15% raise in its quarterly cash dividend to 17.25 cents from 15 cents per common share to be paid on June 13, 2014. 

However, the Canadian software company also posted earnings and revenue results below Wall Street expectations in the quarter.

The company reported year over year quarterly revenue was up 31% to $442.8 million, missing analysts estimates of $481.85 million, while non-GAAP income of 84 cents per share missed analysts estimates by 7 cents.

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TheStreet Ratings team rates OPEN TEXT CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate OPEN TEXT CORP (OTEX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, OTEX's share price has jumped by 65.90%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, OTEX should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.6%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for OPEN TEXT CORP is currently very high, coming in at 73.89%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, OTEX's net profit margin of 14.71% significantly trails the industry average.
  • Despite currently having a low debt-to-equity ratio of 0.39, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.41 is sturdy.
  • OPEN TEXT CORP's earnings per share declined by 13.5% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, OPEN TEXT CORP increased its bottom line by earning $1.26 versus $1.07 in the prior year.
  • You can view the full analysis from the report here: OTEX Ratings Report
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