OpenText is too volatile right now, this fund manager says

OpenText (OPENTEXT STOCK QUOTE, CHART, NEWS: NASDAQ, TSX:OTEX) may look good on paper, but the stock is just too volatile to merit your hard-earned dollars, says investment strategist David Burrows, who suggests that once OTEX starts breaking out above US$35, you might want to hop on for the ride.

Enterprise information management company OpenText is holding its annual Enfuse conference in Las Vegas from May 22 – 24, with this year’s theme being ‘Bringing security to the edges of the network and beyond.’ The company’s CEO and CTO Mark J. Barrenechea opened the event by speaking of how cybercrime is being redefined by the more widespread use of technologies like artificial intelligence, the Internet of Things and hyper-connectivity.

“Recent, high-profile data breaches show that security and data privacy must be at the top of the priority list for the intelligent and connected enterprise,” says Barrenechea in a press release. “Now, more than ever, organizations require the latest information security platforms to collect, analyze, and remediate urgent threats – real time. As the Information Company, OpenText can help our customers prevent data breaches by providing them with a single, secure platform for their enterprise information needs.”

Earlier this month, the company saw its share price drop nine per cent in one day’s trading in response to missed estimates in its third quarter fiscal 2018 earnings report. OpenText posted a 15.6 per cent uptick in revenue compared to 2017’s Q3, but the topline of US$685.9 came in below the consensus US$689.9 million, with its EPS of 54 US cents underperforming the Street’s 62 US cents estimate.

Investors had the opposite reaction to OTEX’s Q2 financials which showed higher revenue growth, then pumping up the stock by 15 per cent. In fact, it’s those types of swings that can make one cautious of OpenText, even as it posts double-digit revenue increases.

“While OpenText has had a lot of success over time, I’ve never had success as a shareholder,” says Burrows, president and chief investment strategist of Barometer Capital, to BNN Bloomberg. “We buy it and the fundamentals look good. It just has been prone to some pretty big gaps over time. The stock is a little bit volatile.”

“Fundamentally, it looks very attractive; it’s not expensive,” says Burrows. “[But] I would probably choose a Microsoft or an Adobe over an OpenText. I am cautiously optimistic, but if it were to trade below US$32, I’d be gone.”

With its Q3 earnings report, OpenText announced a 15 per cent increase in its quarterly cash dividend, bringing it to $0.1518 per share.

Burrows says, “Conversely, if the stock trades above US$35-$36, it’s breaking out and you’d want to add to it.”

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