Guidewire Software has had an impressive run over the past six months as its shares have beaten the S&P 500 by 10.2%. The stock now trades at $249.49, marking a 26.4% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is it too late to buy GWRE? Find out in our full research report, it’s free.
Why Does Guidewire Software Spark Debate?
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Two Things to Like:
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Guidewire Software’s billings punched in at $437.6 million in Q2, and over the last four quarters, its year-on-year growth averaged 21.2%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Guidewire Software is extremely efficient at acquiring new customers, and its CAC payback period checked in at 17.6 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Guidewire Software more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Guidewire Software grew its sales at a 10.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Guidewire Software.
Final Judgment
Guidewire Software’s merits more than compensate for its flaws, and with its shares outperforming the market lately, the stock trades at 15.1× forward price-to-sales (or $249.49 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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