Guidewire Software (GWRE) Showing Signs Of Perilous Reversal Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Guidewire Software ( GWRE) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Guidewire Software as such a stock due to the following factors:

  • GWRE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $26.3 million.
  • GWRE has traded 287,610 shares today.
  • GWRE is down 3.1% today.
  • GWRE was up 11.8% yesterday.

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More details on GWRE:

Guidewire Software, Inc. provides software products for property and casualty (P&C) insurers. It offers an integrated suite of software applications that address the core processes, such as underwriting and policy administration, claims management, and billing. GWRE has a PE ratio of 169. Currently there are 4 analysts that rate Guidewire Software a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Guidewire Software has been 334,700 shares per day over the past 30 days. Guidewire Software has a market cap of $3.3 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.53 and a short float of 5.2% with 7.10 days to cover. Shares are up 4.6% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Guidewire Software as a hold. 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 unimpressive growth in net income and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • GWRE's revenue growth has slightly outpaced the industry average of 4.9%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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.
  • GWRE 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. Along with this, the company maintains a quick ratio of 5.90, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to its closing price of one year ago, GWRE's share price has jumped by 28.42%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • GUIDEWIRE SOFTWARE INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, GUIDEWIRE SOFTWARE INC reported lower earnings of $0.19 versus $0.24 in the prior year. This year, the market expects an improvement in earnings ($0.55 versus $0.19).
  • 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 56.1% when compared to the same quarter one year ago, falling from -$1.91 million to -$2.99 million.

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