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"We rate PEGASYSTEMS INC (PEGA) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and relatively poor performance when compared with the S&P 500 during the past year."
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Highlights from the analysis by TheStreet Ratings Team goes as follows:
- PEGA's revenue growth trails the industry average of 28.6%. Since the same quarter one year prior, revenues rose by 12.8%. 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.
- PEGA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, PEGA has a quick ratio of 1.62, which demonstrates the ability of the company to cover short-term liquidity needs.
- PEGASYSTEMS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PEGASYSTEMS INC increased its bottom line by earning $0.49 versus $0.28 in the prior year. This year, the market expects an improvement in earnings ($0.73 versus $0.49).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 78.4% when compared to the same quarter one year ago, falling from $8.71 million to $1.88 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Software industry and the overall market, PEGASYSTEMS INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: PEGA Ratings Report