What happened

Pegasystems (NASDAQ:PEGA) shareholders outpaced a booming market last year as the stock soared 67%, compared to a 29% spike in the S&P 500 index, according to data provided by S&P Global Market Intelligence.

Shares never trailed the S&P 500, and that return gap ended the year near its largest point.

A customer service representative talks on the phone.

Image source: Getty Images.

So what

Investors have been pleased with the software giant's shift toward a software-as-a-service selling model. That move has reduced reported sales gains, but operating trends look better after that temporary pressure is adjusted for. Contract value, management's preferred growth metric, has been expanding at a robust pace of at least 20% over the last few quarters.

Now what

Pegasystems' latest backlog figure implies further market share gains through at least the end of fiscal 2020. From there, investors are expecting the next fiscal year to bring major financial gains that demonstrate the power of the subscription selling model. Namely, predictable and steady revenue and cash flow should combine to power a significant step toward bottom-line profitability. These wins would go a long way toward justifying last year's stock price rally, but much depends on the company's continuing to project market-thumping contract growth in 2020.