Shares of application software company Progress Software Corp. (PRGS, Financial) are down nearly 10% following the release of its fourth-quarter results. The Bedford, Massachusetts-based company announced earnings and revenue that topped estimates after the closing bell on Thursday.
Progress had gained 9.71% since the start of the year before the latest pullback. The stock is now up 48.37% since bottoming in March. It has, however, lost more than 6.4% in market value over the last 12 months.
At the current stock price of about $44 per share, Progress is trading at about 20% below the consensus Street price target of $55. However, the Peter Lynch earnings line suggests the stock is slightly overvalued based on a price-earnings ratio of 15.
Highlights from recent quarterly results
In the company's most recent quarterly results, Progress Software's earnings per share grew by 15.19% from the same period a year ago to 91 cents. This was better than the consensus analyst expectation of 77 cents.
The company's non-GAAP revenue grew 4.58% year over year to $129.06 million, which also beat the average Street estimate of $128 million.
Progress Software's adjusted full-year revenue for the period ended Nov. 30 came in at $456.2 million, up 6% from $432 million reported in 2019. Adjusted earnings per share grew 15% to $3.09, up from $2.69 posted a year ago.
Looking forward, Progress has guided for first-quarter 2021 earnings of 72 cents to 76 cents, which is lower than the consensus estimate of 81 cents. The revenue guidance of about $119 million to $123 million is also lower than the Street estimate of $130 million.
Full-year earnings guidance of $3.22 to $3.28 per share is relatively better than the expectation of $3.21 while the higher side of the sales guidance of $513 million to $521 million beats the consensus expectation of $516 million.
From a valuation perspective, shares of Progress appear to be trading at a relatively low price-earnings ratio of 25.08. In comparison, close peer Citrix Systems Inc. (CTXS, Financial) trades at a price-earnings ratio of 28.39. On the other hand, Aspen Technology Inc. (AZPN, Financial) trades at an equivalent of 46.90 while National Instruments Corp.'s (NATI, Financial) trailing price-earnings ratio is 30.56.
When we factor in expected earnings for the next 12 months, Progress trades at a competitive forward price-earnings ratio of 14.10 while Citrix's equivalent is 20.58. On the other hand, Aspen Technology and National Instruments trade at forward price-earnings ratios of 28.65 and 33.67.
In summary, shares of Progress Software appear to be modestly overvalued based on the Peter Lynch price-earnings line. However, when we compare the stock to peers, it looks relatively undervalued. The company's stock is down more than 6% over the last 12 months, which suggests the latest pullback may be an opportunity to buy.
Disclosure: No position in the stocks mentioned.
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