Open Text (OTEX) AI Stock Analysis

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Open Text

(NASDAQ:OTEX)

Rating:74Outperform

Price Target:―

Open Text presents a solid financial foundation with strong operational efficiency and profitability. The company's strategic focus on AI and cloud growth is promising. However, challenges such as revenue miss and macroeconomic disruptions temper the overall positive outlook. The stock could be appealing due to its low valuation and healthy dividend yield.

Positive Factors

Financial Performance

Q2/25 results were above consensus, showing a beat in revenue and EBITDA.

Valuation

OTEX's valuation is considered undemanding given its recurring revenue profile and profitability.

Negative Factors

Guidance

Q3/25 guidance was below expectations, indicating organic growth challenges.

Open Text (OTEX) vs. iShares MSCI Canada ETF (EWC)

Market Cap

C$10.09B

Dividend Yield3.63%

Average Volume (3M)820.64K

Price to Earnings (P/E)11.4

Beta (1Y)1.36

Revenue Growth-8.74%

EPS Growth307.82%

CountryCA

Employees21,700

SectorTechnology

Sector Strength83

IndustrySoftware - Application

Share Statistics

EPS (TTM)1.14

Shares Outstanding259,142,430

10 Day Avg. Volume1,048,631

30 Day Avg. Volume820,644

Financial Highlights & Ratios

PEG Ratio-27.13

Price to Book (P/B)1.76

Price to Sales (P/S)0.00

P/FCF Ratio9.92

Enterprise Value/Market Cap1.23

Enterprise Value/Revenue0.56

Enterprise Value/Gross Profit3.25

Enterprise Value/Ebitda1.77

Forecast

1Y Price Target

C$39.33

Price Target Upside1.03% Upside

Rating ConsensusHold

Number of Analyst Covering7

Open Text Business Overview & Revenue Model

Company DescriptionOpenText Corporation (OTEX) is a Canadian enterprise information management company that develops and sells software solutions and services to manage, process, and store digital information. Operating in sectors such as information technology and services, OpenText offers core products including enterprise content management (ECM), digital process automation, business network, and artificial intelligence solutions. The company serves a diverse range of industries, providing tools that enhance productivity and enable businesses to leverage data for better decision-making.

How the Company Makes MoneyOpenText makes money primarily through the sale of its software products and related services. The company's revenue model is largely based on licensing fees, where customers pay for the right to use OpenText's software solutions. This includes both perpetual licenses and subscription-based models, which provide a steady stream of recurring revenue. In addition to software sales, OpenText generates income through professional services, including consulting, implementation, and support services. The company also earns revenue from its cloud offerings, as businesses increasingly shift towards cloud-based solutions. Strategic partnerships with large technology firms and acquisitions of complementary businesses also play a significant role in OpenText's revenue generation by expanding its product offerings and customer base.

Open Text Earnings Call Summary

Earnings Call Date:Apr 30, 2025

(Q3-2025)

% Change Since: 4.31%|

Next Earnings Date:Jul 31, 2025

Earnings Call Sentiment Neutral

Despite strong free cash flow and a strategic pivot towards AI, the earnings call highlighted significant challenges with revenue and bookings due to external economic factors. The company's commitment to AI and cloud growth is promising, but the immediate financial results and macroeconomic disruptions create a mixed outlook.

Q3-2025 Updates

Positive Updates

Strong Free Cash Flow

Record-free cash flow of $374 million, up 7% year-over-year, with a free cash flow margin of 30%.

AI First Strategy

Open Text has committed to an AI-first strategy, integrating AI across the organization and introducing new products like AI Aviators and My Aviator.

Cloud Revenue Growth

Cloud revenues grew by 3% year-over-year in constant currency, marking the 17th consecutive quarter of organic growth.

Capital Allocation Flexibility

The company plans to resume programmatic M&A and share buybacks with capital flexibility, returning to traditional capital allocation strategies.

Negative Updates

Revenue Miss

Total revenue was $1.27 billion, 50 basis points below the target range due to demand disruption caused by tariffs and other factors.

Enterprise Bookings Decline

Enterprise bookings were $151 million, down 8.4% year-over-year, attributed to macroeconomic disruption.

Customer Support Revenue Decline

Customer support revenue was slightly below expectations, impacted by ITOM and ADM license performance, the DXC contract, and FX.

Company Guidance

During the Open Text Corporation Third Quarter Fiscal 2025 Financial Results Conference Call, guidance was provided on several key metrics. The company reported total revenue of $1.27 billion, slightly below the expected range due to market volatility, particularly due to the disruption caused by auto tariffs. Cloud revenues grew by 3% year-over-year, marking the 17th consecutive quarter of organic growth. The adjusted EBITDA margin was 31.5%, and free cash flow reached a record $374 million, representing a 7% increase year-over-year. Despite challenges, Open Text reaffirmed its commitment to controlling areas like EBITDA, earnings, and free cash flow. The company announced an expanded business optimization plan aiming for annualized savings of up to $400 million, alongside a net reduction of 1,600 employees. Looking forward, Open Text adjusted its Fiscal 2025 revenue target to $5.1 billion to $5.17 billion and maintained its focus on strategic priorities, including competitive advantage, total revenue growth, and operational excellence, driven by its AI-first initiatives.

Open Text Financial Statement Overview

Summary

Open Text demonstrates strong financial performance with robust revenue growth, high profitability margins, and effective cash flow management. The balance sheet is stable, though increased leverage warrants monitoring. Overall, the company is well-positioned financially, with potential growth and profitability supported by strong operational efficiency.

Income Statement

Very Positive

The company exhibits strong revenue growth with a TTM revenue of $5.22 billion, up from $4.48 billion in the previous year, indicating a 16.52% growth rate. Gross profit margin remains robust at 73.23%, reflecting efficient cost management. The net profit margin improved to 12.55%, with a significant increase in net income. EBIT and EBITDA margins of 17.33% and 32.03% respectively, suggest healthy operational efficiency. Overall, the income statement reflects a positive financial trajectory with strong profitability.

Balance Sheet

Positive

The balance sheet shows a solid equity ratio of 30.02%, indicating a stable financial foundation. The debt-to-equity ratio at 1.61 reflects moderate leverage, which is common in the industry. Return on equity (ROE) has improved to 15.87%, showcasing effective use of equity capital. However, total debt has increased, which may pose future financial risk if not managed carefully. Overall, the balance sheet demonstrates stability with moderate leverage risks.

Cash Flow

Positive

The company maintains strong cash flow generation with a TTM operating cash flow of $857.65 million. Free cash flow has grown, indicating a positive free cash flow growth rate. The operating cash flow to net income ratio of 1.31 suggests efficient conversion of earnings to cash. The free cash flow to net income ratio is 1.08, reflecting strong cash conversion. Despite investing and financing challenges, the cash flow statement shows a healthy cash position.

TTM	Jun 2024	Jun 2023	Jun 2022	Jun 2021	Jun 2020
Breakdown
Income Statement		Total Revenue
5.22B	5.77B	4.48B	3.49B	3.39B	3.11B
	Gross Profit
3.82B	4.19B	3.17B	2.43B	2.35B	2.11B
	EBIT
904.39M	887.09M	516.29M	644.77M	740.90M	503.53M
	EBITDA
1.67B	2.10B	1.26B	1.18B	1.33B	1.02B
	Net Income Common Stockholders
655.26M	465.09M	150.38M	397.09M	310.67M	234.22M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.28B	1.28B	1.23B	1.69B	1.61B	1.69B
	Total Assets
13.75B	14.21B	17.09B	10.18B	9.61B	10.23B
	Total Debt
6.65B	6.69B	9.25B	4.47B	3.87B	4.48B
	Net Debt
5.37B	5.41B	8.01B	2.78B	2.26B	2.78B
	Total Liabilities
9.62B	10.01B	13.07B	6.15B	5.51B	6.23B
	Stockholders Equity
4.13B	4.20B	4.02B	4.03B	4.10B	4.01B
Cash Flow		Free Cash Flow
708.67M	808.40M	655.37M	888.70M	812.45M	881.83M
	Operating Cash Flow
857.65M	967.69M	779.21M	981.81M	876.12M	954.54M
	Investing Cash Flow
2.06B	2.06B	-5.65B	-970.96M	-68.77M	-1.47B
	Financing Cash Flow
-2.76B	-2.96B	4.40B	138.46M	-924.55M	1.27B

Open Text Technical Analysis

Technical Analysis Sentiment

Neutral

Last Price38.93

Price Trends

50DMA

37.15

Positive

100DMA

38.14

Positive

200DMA

40.21

Negative

Market Momentum

MACD

0.43

Positive

RSI

54.48

Neutral

STOCH

51.32

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:OTEX, the sentiment is Neutral. The current price of 38.93 is above the 20-day moving average (MA) of 38.88, above the 50-day MA of 37.15, and below the 200-day MA of 40.21, indicating a neutral trend. The MACD of 0.43 indicates Positive momentum. The RSI at 54.48 is Neutral, neither overbought nor oversold. The STOCH value of 51.32 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for TSE:OTEX.

Open Text Risk Analysis

Open Text disclosed 51 risk factors in its most recent earnings report. Open Text reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Open Text Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
DSG	76 Outperform	$13.48B	69.88	10.66%	―	17.42%	22.81%
ENGH	75 Outperform	$1.48B	17.47	14.76%	3.94%	8.11%	15.83%
OTEX	74 Outperform	C$10.09B	11.42	15.87%	3.63%	-8.74%	307.82%
KXS	73 Outperform	C$5.62B	404.51	2.32%	―	15.14%	-31.45%
DCBO	67 Neutral	C$1.10B	34.75	41.12%	―	20.52%	246.69%
LSPD	63 Neutral	C$2.08B	―	-33.64%	―	23.95%	39.68%
Sector *	62 Neutral	$11.75B	10.58	-7.10%	2.91%	7.47%	-7.95%

* Technology Sector Average

Performance Comparison

TSE:OTEX

Open Text

38.80

1.33

3.55%

TSE:ENGH

Enghouse Systems

26.30

-1.54

-5.54%

TSE:DSG

The Descartes Systems Group

138.95

11.84

9.31%

TSE:DCBO

Docebo

36.72

-14.26

-27.97%

TSE:KXS

Kinaxis Inc

196.89

45.65

30.18%

TSE:LSPD

Lightspeed POS Inc

15.49

-4.64

-23.05%

Open Text Corporate Events

Executive/Board ChangesBusiness Operations and Strategy

OpenText Appoints New Board Member for Strategic Growth

Positive

Nov 26, 2024

OpenText Corporation has appointed Fletcher Previn, Senior VP and CIO of Cisco Systems, to its board of directors, highlighting the company’s focus on refreshing its board with diverse skill-sets. Previn brings over 20 years of IT experience, including a significant tenure at IBM, and is expected to contribute to OpenText’s growth and modernization strategies.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.