In general, low P/E stocks tend to be less risky and more defensive, which provides stability during periods of market volatility. Investing in low P/E stocks has a number of benefits, including the potential for higher returns, lower risk, and increased stability.
Thus, investors could consider buying fundamentally sound tech stocks Open Text Corporation (OTEX), Teradata Corporation (TDC), and Clear Secure, Inc. (YOU) with low P/E ratios.
The demand for IT services is steadily increasing globally due to the rising popularity of cloud-based software and the growing need to automate business processes. Since 2022, cloud-based IT services have seen rapid adoption among SMEs and are projected to secure over 80% of the market share by 2025.
Additionally, economists are penciling in a Fed rate cut of 0.25 of a percentage point in September, which would trim the benchmark rate to a range of 5% to 5.25%. The announcement is likely to offer a mixed bag for consumers and businesses grappling with the highest borrowing costs in years.
Given these economic trends, a diversified and well-balanced stock portfolio can provide investors with stability and long-term gains. Stocks with low P/E ratios seem to be particularly attractive investments.
Open Text Corporation (OTEX)
Headquartered in Waterloo, Canada, OTEX offers information management software and solutions. It provides content services, including content collaboration and intelligent capture to records management, collaboration, e-signatures, and archiving.
On July 16, 2024, OTEX announced its latest groundbreaking product innovations with Cloud Editions (CE) 24.3. This release represents a significant leap forward in integrating advanced information management capabilities, trusted cloud solutions, robust security measures, and cutting-edge AI to optimize data performance for simpler but superior results.
On June 3, OTEX showcased a powerful suite of SAP custom solutions with generative AI to revolutionize information management within SAP processes. These new enhanced capabilities enable future knowledge workers using SAP to integrate, search, and apply archived information while controlling long-term cloud costs, reducing risks, meeting industry-specific compliance rules, and improving worker efficiencies.
OTEX’s forward non-GAAP P/E of 7.47x is 69.7% lower than the industry average of 24.68x. Its forward Price/Sales multiple of 1.43 is 51.4% lower than the industry average of 2.95.
During the third quarter that ended March 31, 2024, OTEX’s total revenues increased 16.3% year-over-year to $1.45 billion. Its non-GAAP operating income grew 29% from the year-ago value to $431.60 million. Net income attributable to OpenText and non-GAAP EPS of $98.30 million and $0.94, reflects growth of 70.8% and 28.8% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA increased 27% year-over-year to $463.70 million, and its adjusted free cash flow rose 13.9% from the prior year’s quarter to $348.20 million.
Analysts expect OTEX’s revenue and EPS for the fiscal year (ended June 2024) to increase 29.6% and 28.1% year-over-year to $5.81 billion and $4.22, respectively. Moreover, OTEX has topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of OTEX have surged 3.7% over the past month to close the last trading session at $31.15.
OTEX’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
OTEX’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
OTEX has an A grade for Value and a B for Growth. It is ranked #26 among 134 stocks in the Software - Application industry.
Click here to access the additional OTEX ratings (Momentum, Stability, Sentiment, and Quality).
Teradata Corporation (TDC)
TDC provides a connected multi-cloud data platform called Teradata Vantage, enabling enterprises to leverage their data across the organization. It integrates diverse data sources to simplify ecosystems and facilitate the transition to the cloud. Additionally, TDC offers business consulting, support, and maintenance services.
On July 16, 2024, TDC announced the new integration of the DataRobot AI Platform with Teradata VantageCloud and ClearScape Analytics. This integration aims to help enterprises maximize their AI potential by providing greater optionality and flexibility for building and scaling safe and effective AI models.
On May 21, 2024, at Microsoft Build, TDC announced that Teradata AI Unlimited, the company’s on-demand AI/ML workload, was available in private preview on Microsoft Fabric.
This integration of TDC with Microsoft Fabric enhances user freedom by providing seamless, on-demand access to ClearScape Analytics, enabling the exploration, discovery, and development of new AI innovations and use cases.
TDC’s forward non-GAAP P/E of 14.79x is 39.3% lower than the industry average of 24.38x. Its forward EV/Sales multiple of 1.90 is 34.9% lower than the industry average of 2.92.
During the first quarter of 2024, TDC’s total revenue stood at $465 million. Its non-GAAP gross profit came in at $289 million and non-GAAP operating income at $89 million. Moreover, its non-GAAP net income was reported at $57 million and $0.57 per share.
Street expects TDC’s EPS for the quarter ending September 2024 to increase 17.2% year-over-year to $0.49. The company’s revenue is expected to be $433.10 million for the same quarter. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past month, the stock plunged 6.8%, closing the last trading session at $32.22.
TDC’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Value and Quality. TDC is ranked #15 out of 76 stocks in the Technology - Services industry.
Beyond what is stated above, we’ve also rated TDC for Stability, Sentiment, Growth, and Momentum. Get all TDC ratings here.
Clear Secure, Inc. (YOU)
YOU operates a secure identity platform under the CLEAR brand name primarily in the United States. Its secure identity platform is a multi-layered infrastructure consisting of front-end, including enrollment, verification, and linking, as well as back-end.
On July 17, 2024, YOU launched its signature identity verification technology at Honolulu's Daniel K. Inouye International Airport (HNL) to streamline the airport's security screening experience. YOU's launch at HNL is expected to create 64 jobs and generate approximately $3.6 million annually in local economic impact.
On May 30, YOU announced a new partnership that will allow members to quickly and securely verify their identity with YOU when opening an investment account.
Thus, YOU bring its trusted consumer brand, over 22 million embedded users, and experience working in other highly regulated industries, such as aviation and healthcare, to Public investors, building on its expanding leadership in the financial services industry.
YOU’s forward non-GAAP P/E of 18.97x is 22.2% lower than the industry average of 24.38x. Its forward EV/Sales multiple of 1.98 is 32.7% lower than the industry average of 2.92.
YOU’s revenue increased 35.3% year-over-year to $179.05 million in the first quarter that ended March 31, 2024. Its operating income came in at $23.69 million, compared to an operating loss of $15.06 million in the previous-year quarter. Its net income was $32.09 million, compared to a net loss of $8.27 million in the prior year’s quarter.
Additionally, the company’s net income per common share came in at $0.20, compared to a loss per common share of $0.06 in the same quarter of 2023.
Analysts expect YOU’s revenue for the second quarter (ended June 2024) to increase 22.7% year-over-year to $183.81 million. Its EPS is expected to rise 72.6% year-over-year to $0.26 for the same quarter. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock gained 10.9%, closing the last trading session at $20.75.
YOU’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Value and Growth and a B for Quality. YOU is ranked #4 out of 23 stocks in the Software - Security industry.
In addition to the POWR Ratings highlighted above, one can access YOU’s ratings (Momentum, Stability, and Sentiment) here.
What To Do Next?
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OTEX shares were trading at $31.23 per share on Tuesday afternoon, up $0.08 (+0.26%). Year-to-date, OTEX has declined -23.87%, versus a 14.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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