This Under-the-Radar Tech Stock Could Be Better Than Shopify Inc (TSX:SHOP)
The Motley Fool
Published Jan 19, 2019 11:00
For years, Shopify (TSX:SHOP)(NYSE:SHOP) has been stealing the limelight of the Canadian tech scene. Boasting 58% revenue growth, increasing market share, and strong 12-month gains, it’s shone brighter than any of its peers. And it’s true that Shopify is a fast-growing enterprise. But in the most recent three- and nine-month periods, Shopify hasn’t achieved positive net income. Although the company reported positive adjusted earnings in Q3, GAAP income was negative, which raises questions about profitability.
But income-hungry tech investors needn’t fret. There’s another Canadian tech stock that’s not only growing, but profitable. In its most recent quarter, it grew its operating cash flow by 155% and has posted positive net income for all of its past four quarters. You may never heard of this company before, but it deserves it be on your radar.
Open Text (TSX:OTEX)(NASDAQ:OTEX) Open Text is a SaaS company that sells enterprise information management software. Its business model involves charging subscription fees for cloud software and consulting services. The company is pounding out cash, bringing in close to $3 billion a year in revenue with a healthy profit margin around 9%. Open Text was founded 28 years ago, which helps to explain why it’s more profitable than a younger company like Shopify. Regardless, it’s still a growing enterprise that had a solid run last year.
2018 gains In 2018, Open Text bested the TSX average by a considerable margin. While the TSX slid 11.6%, OTEX gained around 4% — not a huge gain, but a great showing considering the TSX’s losses in the same period. This is made all the more remarkable by the fact that 2018 was a weak year for tech stocks, with companies like Facebook (NASDAQ:FB) trending downward the entire year.
Fundamentals Open Text has some solid fundamentals to back up its stock price. In its most recent quarter, the company brought it $667 million in revenue, which represents 4% growth over the same quarter a year before. The growth in revenue was on the low end, but the company increased operating cash flow by 155%, indicating that it’s spending its operating dollars more efficiently than in past years. The company’s profit margin is around 9%, which is not the highest on earth, but certainly not razor thin. Finally, the company’s assets far exceed its liabilities, leaving a healthy amount of shareholder equity.
Get The App
Dividends Finally, we get to the topic of dividends. Open Text does indeed share a portion of its earnings with shareholders, paying about $0.15 in income each quarter, giving the stock a trailing yield of about 1.3%. The company raised its dividend recently, but it has been reduced in the past. For example, the company’s total 2018 dividends ($0.58) were less than its 2017 dividends ($1.5). However, the company appears to have issued an extra dividend in 2017, which may explain why that year’s income was so much higher than those immediately before and after it.
Fool contributor Tom Gardner owns shares of Facebook and Shopify. The Motley Fool owns shares of Facebook, Open Text, Shopify, and Shopify. Open Text and Shopify are recommendations of Stock Advisor Canada.
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.