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Why Pegasystems Stock Gained 17% in February

By Demitri Kalogeropoulos – Updated Apr 10, 2019 at 2:45PM

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Investors cheered news of the software specialist's accelerating sales growth.

What happened

Pegasystems (PEGA -1.97%) stock outpaced the market last month, when it gained 17% compared to a 3% rise in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally also put shareholders in the business management software specialist ahead of the market over the past year; it's now up 17%, versus a 4% gain for the S&P 500.

A customer service representative at work in front of a computer.

Image source: Getty Images.

So what

February's rally came in response to news of generally strong fourth-quarter earnings. The company said late in the month that annual contract value, management's preferred growth metric, accelerated to a 23% increase from 20% in the prior quarter. Backlog, which is an indication of future sales, improved to $631 million from $522 million in the previous quarter.

Check out the latest earnings call transcript for Pegasystems.

Now what

CEO Alan Trefler and his team believe 2019 will include a return to sales growth for the company -- an important step forward as it shifts its business toward a subscription-based model. The transition to that approach has dampened its sales and profit figures lately, but should result in steadier cash flow over the long term. Investors aren't likely to see Pegasystems earn actual profits in 2019, though, and so all of the enthusiasm for the stock involves hopes that its losses will end, perhaps as early as 2020.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Pegasystems. The Motley Fool has a disclosure policy.

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