Market Overview

Wedbush's Enterprise Software Picks For '16

Wedbush's Enterprise Software Picks For '16

  • According to Steve Koenig of Wedbush, his high-growth software index continues to outperform other software issues.
  • Koenig added that as a group, trading multiples for the high-growth software stocks have remained below the 8 to 10x forward EV/revenue level and the current 7.5x multiple is just above the 6.5x trough multiple seen in the spring of 2014.
  • The analyst named Qlik Technologies Inc (NASDAQ: QLIK) and PTC Inc (NASDAQ: PTC) as near-term picks and Proofpoint Inc (NASDAQ: PFPT) as a long-term pick.
  • Heading into the end of the calendar year, Steve Koenig of Wedbush overviewed the enterprise software group, noting high-growth software multiples remain below the 8 to 10x forward EV/revenue level they held prior to the correction in late August.

    Koenig continued that the current 7.5x multiple for the group is "slightly" above the 6.5x trough multiple following the spring 2014 market correction and the bottom half of 2014. The analyst noted a "disappointing" IPO pricing for Mimecast Ltd (NASDAQ: MIME) and Square Inc (NYSE: SQ) have "probably contributed" to the "subdued" multiples.

    Related Link: Wedbush On Enterprise Software: Proofpoint Top Pick For 2016

    Qlik: Attractive Entry Point

    According to Koenig, Qlik Technologies' "solid" growth trends is expected to resume following a "weak" third-quarter performance. The analyst is expecting the company's fourth-quarter licenses growth to be near 20 percent, driven by a "strong" product cycle with Qlik Sense and ongoing investments in QlikView. He also noted that his checks don't "point to any change in the competitive dynamic."

    Koenig argued that if the company can demonstrate "good progress" toward its operating margin goal of 20 percent, the stock's 3.7x EV/fiscal 2016 revenue "looks pretty attractive."

    PTC: Favorable Risk To Reward

    Koenig stated that PTC is "poised to benefit" from a transition to a subscription-based and recurring revenue profile following its transition plan, which was communicated in November. The analyst suggested the company's plan "appears sound" and "doesn't look overly aggressive." In addition, the new profile will allow investors to better monitor progress.

    Koenig suggested that in the near term, investors will "likely react positively" to not only the company's progress on the subscription transition, but growth in IoT (Internet of Things) bookings and possibly an improving macro environment, which will provide "attractive upside" to the current stock's valuation.

    Proofpoint: Best Idea For 2016

    Koenig pointed out that while shares of Proofpoint continued its "strong run" following its third-quarter print, the stock's risk to reward profile is still attractive over the next 12 months. The analyst argued that the company is benefiting from "strong momentum" for targeted attack protection, accelerating add-on activity into its base, new customer additions and the recently announced "encouraging" partnership with Intel Security in which Intel will transition its customers to Proofpoint.

    Image Credit: Public Domain

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