Headquartered in Waterloo, Canada, Open Text Corporation (OTEX) designs, develops, markets, and sells information management software and solutions. It offers content services, business networks, and security and protection solutions. On the other hand, Upland Software, Inc. (UPLD) provides cloud-based enterprise work management software internationally. It offers a family of software applications in marketing, sales, contact center, and project management under the Upland brand.

Despite cloud-based data security concerns, the enterprise software sector is booming with increasing demand from almost every company as part of their digital transformation efforts to stand out from the competition. Moreover, the rise in the adoption of hybrid work worldwide is benefiting the enterprise software industry. According to a Statista report, the worldwide enterprise software market is expected to grow at a CAGR of 8.74% by 2026. So, both OTEX and UPLD should benefit.

OTEX has gained 1.1% over the past month, while UPLD has negative returns.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On February 3, 2022, OTEX announced that it is deepening its strategic partnership with Google Cloud by launching its OpenText Core Content as a service on Google Cloud. Mark Barrenechea, CEO & CTO at OpenText, said, “Distributed work is here to stay and organizations must ensure they have the right technology, information and processes in place to deliver on employee and customer expectations.”

On March 10, 2022, UPLD announced opening a Center of Excellence in Bengaluru, India, as part of its continued offshore expansion efforts. This new CoE will serve as Upland’s global engineering cornerstone, further accelerating the company’s ability to deliver customer-driven digital transformation solutions through its growing library of 31+ products.

Recent Financial Results

OTEX’s total revenue increased 2.5% year-over-year to $876.80 million for the fiscal second quarter ended December 31, 2021. The company’s net income came in at $ $88.30 million compared to a loss of $65.50 million in the prior-year quarter. Also, its EPS came in at $0.32 compared to a loss of $0.24 in the year-ago period.

UPLD’s total revenue decreased 3% year-over-year to $75.70 million for the fiscal first quarter ended December 31, 2021. The company’s net loss came in at $7.50 million, representing a 31.6% year-over-year increase. Also, its loss per share came in at $0.24, up 26.3% year-over-year.

Past and Expected Financial Performance

Over the past three years, OTEX’s revenue and EBITDA grew at CAGRs of 6.5% and 6.1%. Analysts expect OTEX’s revenue to increase 4.7% for the quarter ending June 30, 2022, and 4.5% in fiscal 2023. The company’s EPS is expected to grow 7% for the quarter ending June 30, 2022, and 11% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 11.7% per annum over the next five years.

On the other hand, UPLD’s revenue and EBITDA grew at CAGRs of 26.3% and 4.6%, respectively, over the past three years. The company’s revenue is expected to increase 5.6% for the quarter ending June 30, 2022, and 4.2% in fiscal 2023. Its EPS is expected to grow 9.8% for the quarter ending June 30, 2022, and 8.3% in fiscal 2023. Also, UPLD’s EPS is expected to grow at a rate of 20% per annum over the next five years.

Profitability

OTEX’s trailing-12-month revenue of $3.44 billion is significantly higher than UPLD’s $302.02 million. OTEX is also more profitable with a gross profit margin and EBITDA margin of 75.55% and 29.40% compared to UPLD’s 67.07% and 13.07%, respectively.

Furthermore, OTEX’s ROE, ROA, and ROTC of 12.13%, 4.47%, and 5.40% compared with UPLD’s negative values.

Valuation

In terms of trailing-12-month non-GAAP P/E, OTEX is currently trading at 13.36x, 39.3% higher than UPLD’s 9.59x. Moreover, OTEX’s trailing-12-month EV/EBITDA ratio of 11.50x is 28.2% higher than UPLD’s 8.97x.

So, UPLD is relatively affordable here.

POWR Ratings

OTEX has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. On the other hand, UPLD has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

OTEX has a grade of B for Sentiment. On the other hand, UPLD has a D grade for Sentiment.

Moreover, OTEX has a B grade for Stability, while UPLD has a Stability grade of C.

Of the 163 stocks in the Software – Application industry, OTEX is ranked #8, while UPLD is ranked #60.

Beyond what I’ve stated above, we have also rated stocks for Quality, Momentum, Growth, and Value. Click here to view all the OTEX ratings. Also, get all the UPLD ratings here.

The Winner

Rapid digital transformation and increasing cloud demand are expected to drive the enterprise software market’s growth for an extended period. So, both OTEX and UPLD are expected to benefit. However, it is better to bet on OTEX because of its superior financials and profitability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software – Application industry here.

OTEX shares fell $0.02 (-0.05%) in after-hours trading Tuesday. Year-to-date, OTEX has declined -7.20%, versus a -5.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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