Progress Software Corp: Undervalued IT Solutions Stock Deserves a Look
Marijuana Business, Stocks, Finance, & Investing September 2, 2020 MJ Shareholders 0
Progress Software Stock Is Cheap, With Great Upside
The Nasdaq continues to rocket higher. You might think the entire technology sector would be involved, but the reality is that the superlative run-up by the mega-cap technology stocks are partly responsible.
There are still smaller technology stocks that have not rejoiced in the buying. Progress Software Corp (NASDAQ:PRGS) is down 7.2% this year and has been significantly underperforming the Nasdaq and the S&P 500.
Progress Software is trading at 26% below its 52-week high of $52.50 and has missed out on the market momentum.
The below chart shows PRGS stock holding in a sideways channel. A break at $42.00 could see Progress Software stock run to the $46.00–$50.00 range.
Chart courtesy of StockCharts.com
It’s somewhat puzzling in my mind why PRGS stock has lagged, given that the IT solutions company generates strong profitability and free cash flow. Nevertheless, while the market shuns Progress Software stock, I’m positive.
Progress Software Corp develops software applications that help information technology (IT) departments of companies develop and maintain business applications on servers, the cloud, or any platform.
PRGS Stock Offers Growth at a Reasonable Price
Progress Software’s revenue picture doesn’t jump out at you. The company has yet to deliver a knockout revenue performance, but its revenues were at a five-year high in 2019.
| Fiscal Year | Revenue (Millions) | Growth |
| 2015 | $377.6 | |
| 2016 | $405.3 | 7.4% |
| 2017 | $397.6 | -1.9% |
| 2018 | $379.0 | -4.7% |
| 2019 | $413.3 | 9.1% |
(Source: “Progress Software Corp.” MarketWatch, last accessed September 1, 2020.)
There is some optimism as Progress Software is estimated to increase revenues 6.9% to $441.7 million in 2020. (Source: “Progress Software Corporation (PRGS),” Yahoo! Finance, last accessed September 1, 2020.)
Progress Software generated positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in five straight years, with growth in three of the last four years.
| Fiscal Year | EBITDA (Millions) | Growth |
| 2015 | $71.0 | |
| 2016 | $107.0 | 50.8% |
| 2017 | $135.0 | 26.1% |
| 2018 | $118.4 | -12.3% |
| 2019 | $127.9 | 8.0% |
(Source: MarketWatch, op. cit.)
After reporting earnings-per-share (EPS) losses based on generally accepted accounting principles (GAAP) in 2015 and 2016, Progress Software was profitable in three straight years.
| Fiscal Year | GAAP Diluted EPS | Growth |
| 2015 | -$0.17 | |
| 2016 | -$1.13 | -564.7% |
| 2017 | $0.77 | 168.3% |
| 2018 | $1.08 | 39.6% |
| 2019 | $0.58 | -45.9% |
(Source: MarketWatch, op. cit.)
On an adjusted basis, PRGS stock made $2.69 per diluted share in fiscal year 19. This is expected to rise to $2.85 per diluted share in 2020, followed by $2.90 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)
Progress Software Corp is also a free cash flow (FCF) machine, producing positive FCF in five consecutive years and marking a five-year high in 2019.
| Fiscal Year | Free Cash Flow (Millions) | Growth |
| 2015 | $97.4 | |
| 2016 | $97.1 | -0.3% |
| 2017 | $102.3 | 5.4% |
| 2018 | $114.1 | 11.5% |
| 2019 | $124.5 | 9.1% |
(Source: MarketWatch, op. cit.)
The company’s balance sheet is prepared for the impact of the COVID-19 pandemic. Progress Software holds $203.6 million in cash and $325.5 million in debt. (Source: Yahoo! Finance, op. cit.)
Analyst Take
Progress Software stock is widely held by institutions, to the tune of 340 institutions holding about 96.1% of the stock. (Source: Yahoo! Finance, op. cit.)
Insiders have also been buying PRGS stock. Over the last six months, insiders bought 75,273 shares via 15 transactions. (Source: Yahoo! Finance, op. cit.)
Given the share price of Progress Software Corp, the valuation of 13.3 times its consensus 2021 EPS estimate is attractive and deserves a look.
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