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Why Pegasystems Stock Jumped 27% in May

By Demitri Kalogeropoulos - Jun 8, 2017 at 7:43PM

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Strong first-quarter results and a growing order backlog have investors feeling optimistic about this business.

What happened

Pegasystems' ( PEGA -1.13% ) stock gained 27% last month, according to data provided by S&P Global Market Intelligence.

PEGA Chart

PEGA data by YCharts.

The surge sent shares to new record highs and contributed to a near-80% jump so far this year.

So what

May's spike came after the business management software specialist posted first-quarter results that were highlighted by robust sales and profit growth. In sharp contrast to the prior quarter's slight decline, revenue bounced 25% higher, to $223 million. Pegasystems, at the same time, managed hefty improvements in gross and operating profit margins and in operating cash flow.

Financial charts.

Image source: Getty Images.

"We got off to a strong start in 2017," CEO Alan Trefler said in a press release. "We are especially pleased with our revenue growth of 25%," Chief Financial Officer Ken Stillwell added, "coupled with improvement in our operating margins."

Net income rose by 160% as operating income more than doubled, to $31 million.

Now what

Pegasystems' operating results can be lumpy from quarter to quarter due to the timing of a few major contracts. That's why investors should focus on longer-term results and not place too much emphasis on one quarter's numbers. In fact, the company's full-year forecast still targets sales growth of 15% to imply a general slowdown from the first quarter's rapid 25% pace.

Still, Pegasystems' backlog -- which represents contracted, but not yet booked, sales -- indicates solid sales growth ahead. That figure improved 32%, to $513 million, this quarter. Term licenses and cloud-based offerings comprise 87% of that figure, up from 79% a year ago. That's good news for the business since the higher proportion of recurring revenue gives management increased visibility into future demand.

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