What happened
Shares of Qualtrics International (XM) popped as much as 34% this week, according to data from S&P Global Market Intelligence. The customer experience management software company posted a good earnings result for the fourth quarter and was buoyed by its majority shareholder SAP (SAP -1.61%) saying it was exploring a sale of its stake in the business. As of 4 p.m. ET on Thursday, Jan. 26, the stock is up 33.9% this week.
So what
Qualtrics sells software to companies in order to help manage their relationships with employees and customers. On Jan. 25, the company reported its earnings for the fourth quarter of 2022. Revenue grew 23% year over year to $389.1 million, while adjusted earnings per share (EPS) came in at $0.03. Both metrics beat analyst expectations heading into the report, which is likely why the stock soared so much the next day.
Guidance also came in strong, with full-year 2023 revenue projected to be between $1.66 billion and $1.67 billion, compared to $1.46 billion in 2022. Steady growth amid a slowdown in the software market is a great sign for Qualtrics' business over the long term.
SAP, Qualtrics's old parent company that spun off the stock a little while ago, said it is considering a sale of its majority stake in the business. This could provide an opportunity for Qualtrics to get bought out by a private equity fund at a premium to its current share price, which is likely why investors started piling into the stock. However, nothing has been finalized as of this moment.
Now what
Qualtrics has gone through a rough ride since becoming its own publicly traded stock. Even after this recent pop, shares of the stock are down 67% in just a few short years, another victim of the software bear market.
The stock has a relatively cheap price-to-sales ratio (P/S) for a software company at just above 6, which is significantly lower than the P/S of 30 it came out at when spun out of SAP. With high gross margins and strong top-line growth, there could be an opportunity in Qualtrics stock at current prices, especially if a takeout bid is on the table. If you believe the company can continue growing revenue at a double-digit rate for many years, now could be a great time to buy Qualtrics.
