American Software (NASDAQ:AMSWA) posted a massive 39.1% gain yesterday, with around 15 times normal trading volume taking place. The company, which focuses on supply chain management and enterprise software solutions, posted an earnings report that showed a slight dip in revenue, but also demonstrated the company's ability to make money with subscription fees instead. The earnings report may not have been everything investors hoped for, but the word out of financial analysts remains bullish, if thin.
American Software's Earnings Report Produces Unexpected Wins
On the surface, American Software's earnings report was not a win. The company saw total revenue decline 2%, dropping to $28.6 million for the quarter. However, that revenue drop wasn't because the company sold fewer products, but rather, because the company started selling its products in a different way.
While American Software's revenue was down 2%, subscription fees were up 28%, hitting $8.1 million total. Additionally, the company's cloud services annual contract value was up 45% , reaching $38.3 million, and the company's maintenance and cloud subscriptions now comprise 60% of total sales, which is itself up from 57% seen this time last year. When these factors combined, adjusted net earnings increased 185% total, reaching $3.6 million.
These gains did prompt some losses in other sectors; maintenance revenues were reportedly down 12%, and professional services and other revenues were also down 13%. This is also likely an effect of the shift to cloud services and subscriptions.
American Software also doesn't provide formal guidance for future outlooks, but the company's chief financial officer, Vince Klinges, offered some informal projections. Klinges looks for the company to produce revenue growth in “low double-digit percentages”, reports noted.
Meanwhile, the company's CEO, Allan Dow, noted that the company's returns were illustrating that more customers were looking to stay with the company long-term. Dow pointed to a 51% rise in the company's Remaining Performance Obligations to demonstrate that customers not only wanted in, but tended to stay in as well. Dow noted that, despite the economic uncertainty surrounding the Covid-19 pandemic, the company managed to finish its year strong with its total bookings better than doubling previously-seen highs.
What Are Financial Analysts Saying About American Software Stock?
While there aren't many financial analysts talking about American Software stock right now, those who are talking are bullish. In fact, American Software stock has held a consensus “buy” rating for the last two years.
A year and a half ago, the company had two “buy” ratings to its credit. A year ago, it was also two “buy” ratings. That was the same story six months ago, three months ago, and even today: two “buy” ratings.
In fact, with these two buy ratings comes a shockingly narrow range for price targets. Right now, the consensus is $25.50 per share, with a high of $26 and a low of $25. Given that American Software stock is currently trading at $27.50 as of this writing, there seems to be a very slight hint of downside to this stock. The company also offers an $0.11 quarterly dividend that dates back to May 2020, which could make it a noteworthy option for income investors.
Yesterday was a big day for American Software analysis; Sidoti upgraded the company from “neutral” to “buy”, though it left its price target untouched at $26 per share, and B. Riley raised its price target from its previous $23 per share to its current $25, which resulted in that extremely narrow price target range.
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