Open Text isn’t getting the respect it deserves, this portfolio manager says

Canadian software company Open Text Corp. (Open Text Stock Quote, Chart, News: TSX:OTEX, NASDAQ:OTEX) isn’t getting the respect it deserves, says portfolio manager Lyle Stein, who claims that the stock which currently sits in the mid-$40 range should be hitting $60.

Canada’s largest software company, Waterloo, Ontario-based Open Text made a key acquisition over a year ago, says Stein, of Vestcap Investment Management, which didn’t get enough notice from the markets.

“When we bought it —they did a big acquisition a year and a half ago and the market was underwhelmed by that— and now we’re getting to see some of the benefits of that,” says Stein to BNN. “The run-up from October to the end of the year, you’re able to get a sense of what that acquisition can mean for Open Text. In the meantime, they keep tucking in acquisitions.”

According to Bloomberg data, Open Text has acquired at least 13 companies over the past two years.

“We like it because it offers a semblance of value in technology space,” says Stein. “The share price hasn’t moved much but this could be a $60 stock over the course of a couple of years.”

Open Text made news earlier in April when it was singled out by activist hedge fund Blue Harbour Group’s CEO Cliff Robbins, who also claimed that the company is undervalued. “This is a very high quality business,” said Robbins, whose company owns a 3.5 per cent stake in Open Text. “This team knows how to do deals and we’re going to help them.”

In response, the company’s share price rose five per cent in two days of trading.

Earlier in the year, OTEX saw big gains as investors responded to the company’s fiscal second quarter 2018 earnings, which featured a 35 per cent increase in revenues along with a whopping 45 per cent jump in adjusted EBITDA.

“You know, in Canada, we’ve got kind of a breed of these kinds of companies — Open Text, Constellation Software — these are good, good companies,” says Stein. “To us, Open Text is a winner.”