Please ensure Javascript is enabled for purposes of website accessibility

Why Pegasystems Stock Gained 15% in April

By Demitri Kalogeropoulos - Updated May 9, 2019 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors bet the software specialist would see strong first-quarter growth as it shifted toward cloud-based sales.

What happened

Business management software specialist Pegasystems (PEGA -0.59%) outpaced the market last month as the stock rose 15% compared to a 4% jump in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally added to a good period for shareholders, who are up almost 50% so far in 2019 compared to a 15% increase in the broader market.

A customer service representative talking on a handset.

Image source: Getty Images.

So what

April's rally reflected growing enthusiasm on the part of investors that Pegasystems' business is becoming much stronger as it shifts toward cloud-based services. The company demonstrated some benefits of that move in an earnings report released in early May. That announcement showed that cloud revenue growth accelerated to 78% from 66% in the prior quarter as a full 70% of new contracts embraced the subscription service compared to 50% a year earlier.

Now what

The stampede toward cloud-delivered software licenses is depressing sales and profits for Pegasystems since the company is trading lump-sum cash for revenue that accrues over many years. The good news is this shift results in more dependable cash flow and, likely, higher profitability. But investors will have to wait until 2020 for a good idea of where Pegasystems' earnings power will land once the business has completely transitioned to the new model.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pegasystems, Inc. Stock Quote
Pegasystems, Inc.
$48.48 (-0.59%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.