Keep your eye on Open Text (Open Text Stock Quote, Chart TSX, NASDAQ:OTEX), says Darren Sissons, partner at Campbell Lee & Ross, who thinks the Canadian tech company could be a good pickup during the sector-wide pullback.
Open Text finished 2018 essentially flat for the year, which is not bad considering some of the direct hits taken in tech over the past few months. An enterprise information management business, OTEX has made a good living off of acquisitions and adept integration, the most recent example being the purchase of cloud-based management solutions company Liaison for $310 million in cash.
Sissons says there are definite good and bad times to be buying Open Text.
“Over the past ten to fifteen years, this has been a great performer. It runs three vertical strategies and they continue to do acquisitions and roll-ups. Periodically, it has a consensus miss and that’s usually the opportunity to buy it,” says Sissons, to BNN Bloomberg. “We have some of it in our system and it’s done really, really well. At these levels, I think [the share price] is reasonable.”
“But the challenge that I have is that over the past four or five years under the new CEO, they’re now embracing a significant amount of debt and periodically you have to wait until the debt’s paid back before they can do another acquisition,” he says. “So, I think we may need to see a little bit more debt repayment and then another acquisition.”
Open Text’s last reported earnings came at the end of October when the company’s fiscal Q1 produced $667 million in revenue, a four per cent year-over-year increase but lower than the Street’s expected $689.9 million. The company’s net income came in at $36.3 million or 13 cents per share, which was better than the consensus but a hair lower than the 14 cents per share a year prior.
A bit of a rarity in the tech field, Open Text offers a dividend which is currently yielding 1.8 per cent. Sissons says that the dividend is likely safe.
“The dividend is going to continue to rise and I think you’re going to see a little more upside in the company. I think this is a company to definitely put on your radar at this point,” he says. “If tech continues to sell off, then we may see a little more upside.”