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Why Open Text Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Open Text (Nasdaq: OTEX  ) jumped as much as 12% today after the data-solutions manager beat earnings estimates in its quarterly report.

So what: Adjusted earnings per share beat estimates by just a penny, coming in at $1.17, while revenue grew 7% to $305.6 million, but the strongest area of growth appeared to be operating cash flow, which grew by 53% to $79.8 million. The company's cash position improved significantly over the past year as cash on the balance sheet nearly doubled.

Now what: The 12% gain here seems mostly unjustified, since the company is still growing at just a moderate pace and it did not issue any guidance. Furthermore, Open Text faces potential challenges in integrating EasyLink Services. Paul Steep, an analyst with Scotiabank, said that he believes it will be several quarters before the company starts seeing returns from absorbing EasyLink, and he was also concerned with a "soft corporate IT spending environment." Investors may want to keep an eye on how Open Text manages this transition for a guide to where shares are going.

Need to stay informed on Open Text? Just add Open Text to your Watchlist.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. Motley Fool newsletter services have recommended buying shares of Open Text. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/26/2016 4:00 PM
OTEX $62.19 Down -1.33 -2.09%
Open Text CAPS Rating: *****