Should You Buy Progress Software After Pullback?

The stock is down nearly 10%

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Nicholas Kitonyi
Jan 18, 2021
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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.

Valuation

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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Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites. Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.