OpenText (TSX:OTEX) has been by way of loads of evolutions over its three-decade historical past, however proper now it’s leaning arduous into the cloud period. Thus exhibiting {that a} Canadian enterprise software program firm can nonetheless make waves in a subject dominated by U.S. giants. But the tech inventory continues to be undervalued. So, let’s get into why it could possibly be one huge alternative ready to occur.
What occurred?
The previous 12 months additionally confirmed how OpenText balances transformation with shareholder returns. It returned a file $683 million to buyers by way of dividends and buybacks, introduced a 5% dividend enhance for fiscal 2026, and accredited a brand new $300 million share-repurchase program. That’s not one thing you see from each tech inventory, particularly these in investment-heavy transitions.
The enterprise nonetheless generated $687 million in free money movement final 12 months, even after investing in cloud, safety, and synthetic intelligence (AI) initiatives. And whereas GAAP (typically accepted accounting ideas) internet earnings dropped to $436 million, the tech inventory maintained a hefty adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) margin of 34.5%, highlighting the profitability of its mannequin.
Fiscal 2025 wasn’t with out challenges. Income fell 10% 12 months over 12 months, largely as a consequence of a significant divestiture. But the tech inventory’s core cloud enterprise saved transferring ahead. Cloud revenues grew 2% for the 12 months and have now logged 18 straight quarters of natural progress. Extra importantly, cloud bookings jumped 32% within the fourth quarter, exhibiting robust demand for its synthetic intelligence (AI)-powered Titanium X platform.
Trying forward
What’s driving the present optimism is how the tech inventory’s choices are lining up with market developments. The Titanium X platform isn’t nearly migrating workloads to the cloud; it layers in AI-driven automation, information administration, and cybersecurity instruments. These capabilities are more and more in demand as enterprises wrestle with distant work, advanced provide chains, and rising cyber threats. Excessive-profile wins up to now quarter reinforce that OpenText can compete for big-ticket contracts towards international gamers.
Nonetheless, the numbers present some strain factors. Buyer assist income fell 14% in fiscal 2025, an indication that legacy on-premise and upkeep contracts are in decline. That’s anticipated in a cloud transition, but it surely does imply the tempo of cloud progress has to choose as much as offset these losses. Administration’s steering for fiscal 2026 of 1% to 2% complete income progress and three% to 4% cloud progress suggests this shall be extra of a gentle climb than a hockey-stick rebound. Buyers also needs to watch debt ranges, which sit at $6.65 billion, leaving much less flexibility if the macro surroundings worsens.
Backside line
The market hasn’t precisely rewarded the tech inventory currently. Shares are down practically 5% over the previous 12 months, even because the S&P 500 has posted double-digit positive aspects. That might depart room for upside if the tech inventory can hit its progress targets and present sooner adoption of its new AI-enhanced cloud instruments. The valuation, with a ahead price-to-earnings ratio of about seven, can be modest for a tech inventory with robust margins and recurring income.
OpenText has confirmed it will possibly adapt earlier than, from content material administration within the early web period to data administration right now. Its newest reinvention within the cloud period may set it up for a brand new progress section, supplied it will possibly maintain the momentum in bookings translating into income. For buyers keen to be affected person, this can be a Canadian tech innovator price watching because it navigates its subsequent chapter in a fast-changing business.
