OpenText is still undervalued, Hap Sneddon says

Canada may have its share of tech success stories, both past and present, but one of the best is still not getting the respect it deserves, says Hap Sneddon, chief portfolio manager at CastleMoore, who believes that even with the gains it has made this year, software and services company >OpenText Corp. (TSX, NASDAQ:OTEX) still has a lot of upside.

Shares of OpenText hit a record high on August 3 as investors responded to the company’s fiscal fourth quarter financial results, which included Q4 revenues of $754 million, a 14 per cent increase year-over-year, and adjusted EBITDA of $281.8 million, a 20 per cent jump over Q4/17. (All figures in US dollars unless otherwise noted.)

“Our fourth quarter was a strong close to a record year, with $2.8 billion in total annual revenues and 23% year over year growth,” said Mark J. Barrenechea, OpenText’s Vice Chair, CEO & CTO. “Fiscal 2018 demonstrates the strength of our Total Growth strategy that combines both acquisition and organic growth. Further, we completed three acquisitions in Fiscal 2018 (Covisint, Guidance Software and Hightail) and we enter Fiscal 2019 with a strong balance sheet.”

OTEX shot up almost 6 per cent in trading on the third and has held its ground since, now up 30 per cent for the year.

Sneddon spoke to BNN Bloomberg Monday and argued that OpenText’s success notwithstanding, there’s still room for this stock to grow.

“It’s probably one of the most under-owned, under-understood tech companies in Canada, one of the few large enterprise software companies,” Sneddon said. “They’ve got a fantastic balance sheet, they can be adaptable and their organic growth and acquisitions are both really good.”

“They’ve been on the bad side of [short-sellers] over the years, and when you have a small float, that can really move things around,” he says.

“It’s hard when you hit new highs to technically say, okay, what’s the technical target, because you’re at new highs,” says Sneddon. “But trade emotion stays there, so based on past history of breaking out, C$60-65 is where you’d expect that to go.”

“[OTEX] can be a little volatile at times,” Sneddon says, “but this is a stock also that when things get a little frothy out there they tend to be a stock that holds in there well.”

“We’ve recommended this before at lower prices and we’re still recommending it today,” he says.