OpenText stock is much more attractive than Constellation Software, Teal Linde says

The last couple of months have been a rough ride for investors in the tech sector, but if you’re looking for a solid pick from here on out, try Canada’s own OpenText (OpenText Stock Quote, Chart NASDAQ, TSX:OTEX), says portfolio manager Teal Linde.

“I think it’s a great company, very successful,” says Linde, manager at Linde Equity Fund, to BNN Bloomberg. “The stock has come off recently because there have been concerns that they’re going to run out of acquisition targets. And so, management has come out and said that they can identify about $100 billion worth of acquisitions targets.”

“They’re generating decent cash flow and they have about $1.5 billion of acquisition capacity. So I think it’s more attractive than Constellation Software, given that the valuation is much more reasonable,” he says.

OTEX’s share price is virtually even for the year, having started out 2018 at C$44.61 before climbing to a high of $51.98 by early August, only to sink again with the broader tech selloff to where it currently sits at C$45.03 as of late Tuesday trading. Before this year, however, the stock saw a good half-decade of growth, starting in early 2013 when OTEX was priced in the C$14 range.

A serial acquirer, OpenText’s latest major purchase was cloud-based enterprise information management company Liaison Technologies, announced on October 31 with the purchase price of $310 million, all in cash. (All figures in US dollars unless otherwise noted.)

For the company’s latest quarterly report, its fiscal first quarter of 2019, also delivered on October 31, OpenText posted a profit of $36.3 million or 14 cents per share, down less than one per cent year-over-year. Revenue came in at $667 million, which was up four per cent year-over-year but was below analysts’ consensus expectation of $689 million. In August, management issued a restructuring plan which aimed at improving the company’s profitability.

“I am pleased with our Q1 Fiscal 2019 results, as OpenText expanded margins and strengthened its balance sheet,” said OpenText EVP, CFO, Madhu Ranganathan, in a press release to mark the first quarter. “We remain focused in our approach to scaling productivity and continuous improvement. We are successfully executing towards our recently announced restructuring plan. Our balance sheet and liquidity position remain very strong with approximately $788 million of cash at the end of the quarter, a 1.7x consolidated net leverage ratio, giving us the flexibility to further support our Total Growth strategy.”