Here’s why you should be buying OpenText

The stock is down to multi-year lows on a combination of company-specific issues together with the market-wide turn away from tech and growth stocks, but you may be missing out on a great opportunity if you’re passing on OpenText (OpenText Stock Quote, Charts, News, Analysts, Financials TSX:OTEX). That’s according to portfolio manager Darren Sissons, who just named it one of his Top Picks for the year ahead.

Canadian enterprise information management company OpenText saw its share price sink last year on news of the proposed $6.0 billion acquisition of UK-based software company Micro Focus. In a year that was already a poor one for tech stocks, the market reacted negatively to the proposed deal and sent the stock for a big loss

And while questions have understandably been posed about the Micro Focus deal — it’s a company that’s had difficulty in growing revenue in recent years, for example — Sissons, vice-president at Campbell, Lee & Ross, says there’ll be a lot more clarity once the acquisition is finalized, which should come sometime near the end of the month.

“The market didn’t like that it bought [Micro Focus]. But the vagaries of UK acquisition law are such that they can’t disclose the rationale for the transaction until it’s closed. Once the transaction is closed, the rationale for the transaction, why it’s being done, the financing and so forth will be discussed,” said Sissons, who spoke on BNN Bloomberg on Monday.

OpenText had been a stellar return on investment stock for a decade or more, leading up until late 2021 when the market turned away from growth and tech stocks in search of safer terrain. The stock peaked at just under $70 but lost almost half of its value over ensuing months. OTEX has had a notable rally recently, however, putting on about 22 per cent since early November.

Sissons likes the look of OpenText going forward and he said he appreciates the fact that insider buying has been occurring at OTEX, including the Board Chair Tom Jenkins who recently bought 750,000 shares with cash.

“OpenText has a ton of recurring revenue, so it’s a very sustainable business model, with a growing dividend, and we think that there’s some upside from here,” he said. “Typically when you buy it on a significant dip, it tends to be reward you, so it’s attractively priced.”

“When the Board writes real cheques rather than just cashing their coupons and just trading for their tax position — the better situation is when management actually want to have more capital in the business and when they do that with real money. That’s a check in my book,” Sissons said.