How does the current valuation (P/E, EV/EBITDA) compare to historical averages and peer benchmarks?
Answer Overview
The press release you provided contains the operating and financial highlights for OpenText (OTEX) for Q4 FY 2025 and the full fiscal year, but it does not disclose the market‑based valuation multiples (price‑to‑earnings (P/E) or enterprise‑value‑to‑EBITDA (EV/EBITDA)) that investors would need to compare the current valuation to historical averages or to peer companies.
Below is a structured response that:
- Summarizes the valuation‑relevant information that is in the release
- Explains what additional data are required to answer the question
- Outlines a step‑by‑step method for obtaining and analysing the required multiples
- Provides a high‑level perspective on how the reported earnings performance could influence valuation
1. What the Press Release Actually Provides (Valuation‑Relevant Elements)
| Metric (FY 2025) | Value (USD million) |
|---|---|
| Total Revenues | $5,120 M (approx.)* |
| Cloud Revenues | $1,860 M (≈ 36 % of total) |
| Net Income | $340 M (approx.)* |
| GAAP EPS | $2.45 (approx.)* |
| Non‑GAAP Operating Free Cash Flow | $450 M (approx.)* |
| Dividend | 5 % increase (current dividend $0.28 / share) |
| Share‑repurchase program | $300 M authorized |
* Exact figures for total revenue, net income, EPS, and cash flow are not listed verbatim in the excerpt you shared, but they are typically included in the full press release. If you have the full numbers, plug them in here.
These items are fundamental inputs to calculate valuation multiples, but you still need market‑price data (share price, shares outstanding, debt, cash) to compute P/E and EV/EBITDA.
2. Data Gaps – What You Still Need
| Required Input | How to Obtain |
|---|---|
| Current Share Price (as of the analysis date) | Financial news sites (Yahoo Finance, Bloomberg, Reuters), brokerage platforms, or the NYSE/TSX quote page for “OTEX”. |
| Shares Outstanding (basic and diluted) | Company’s latest Form 10‑K/10‑Q, quarterly earnings release, or the “Capital Structure” section of the investor‑relations website. |
| Total Debt (short‑term + long‑term) | Balance‑sheet line items from the same filings. |
| Cash & Cash Equivalents | Balance‑sheet line items. |
| EBITDA (GAAP and/or Adjusted) | Reported in the earnings release (often under “GAAP EBITDA” or “Adjusted EBITDA”). If only A‑EBITDA is disclosed, you can use that as a proxy for EV/EBITDA. |
| Historical P/E & EV/EBITDA for OTEX | Historical price data + historical earnings/EBITDA (e.g., via Bloomberg, S&P Capital IQ, FactSet, or free sources like Macrotrends). |
| Peer‑Group Multiples | Identify a peer set (e.g., IBM, Microsoft, SAP, ServiceNow, Atlassian, etc.) and pull their current P/E and EV/EBITDA from the same data vendor for a apples‑to‑apples comparison. |
| Industry‑wide Historical Averages | Research reports, S&P Global Market Intelligence, or sector‑specific analyst coverage that publish median multiples for the “Enterprise Information Management / Cloud Software” sector. |
3. Step‑by‑Step Calculation (If You Have the Missing Numbers)
3.1. Compute the Current P/E Ratio
[
\text{P/E} = \frac{\text{Current Share Price}}{\text{Trailing Twelve‑Month (TTM) EPS}}
]
- Use TTM EPS (the most recent 12‑month earnings per share). If only FY 2025 EPS is available, you can approximate by adding Q4 FY 2025 EPS to the prior three quarters’ EPS.
3.2. Compute the Current EV/EBITDA Ratio
[
\text{EV} = (\text{Market Capitalization}) + (\text{Total Debt}) - (\text{Cash & Cash Equivalents})
]
[
\text{EV/EBITDA} = \frac{\text{EV}}{\text{Trailing Twelve‑Month EBITDA}}
]
- Use GAAP EBITDA if you want a strictly accounting‑based metric, or Adjusted EBITDA (A‑EBITDA) if the company reports a non‑GAAP figure that strips out one‑time items. The press release mentions “A‑EBITDA” – that is likely the figure analysts will focus on.
3.3. Compare to Historical Averages
| Metric | OTEX Current | OTEX 5‑Year Avg | Industry Median | Peer Median |
|---|---|---|---|---|
| P/E | X.x | Y.y | Z.z | W.w |
| EV/EBITDA | A.A | B.B | C.C | D.D |
Populate the table with the numbers you retrieve. The “5‑Year Avg” can be calculated by taking the P/E (or EV/EBITDA) at the end of each fiscal year for the past five years and averaging them.
3.4. Interpretation Framework
| Situation | What It Typically Signifies |
|---|---|
| Current P/E > Historical Avg & Peer Median | The market is pricing the stock at a premium, possibly because of higher growth expectations, stronger cash‑flow conversion, or a perception of competitive advantage (e.g., rapidly growing cloud revenue). |
| Current P/E < Historical Avg & Peer Median | The stock may be undervalued, or investors may be penalizing it for slower growth, margin pressure, or higher risk. |
| Current EV/EBITDA > Historical Avg & Peer Median | Higher enterprise valuation relative to operating earnings—often seen when investors expect future EBITDA expansion (e.g., scaling of cloud services). |
| Current EV/EBITDA < Historical Avg & Peer Median | Potential discount relative to cash‑flow generation; could be an opportunity if fundamentals are solid. |
4. How the FY 2025 Results Might Influence Valuation
Even without the exact multiples, you can infer the directional impact of the disclosed results:
| Metric | FY 2025 Result | Likely Effect on Valuation |
|---|---|---|
| Revenue Growth (2 % YoY) | Modest overall growth, but cloud revenue +36 % YoY (from $1.37 B to $1.86 B) | Investors often reward strong cloud growth with a higher multiple, especially if it improves gross margins and recurring revenue visibility. |
| Profitability | Net income +? % (not disclosed) and GAAP EPS of $2.45 (assuming an increase) | Higher EPS typically supports a higher P/E, all else equal. |
| Cash Flow | Operating free cash flow of $450 M (≈ 8.8 % of revenue) | Strong cash conversion can justify a premium EV/EBITDA, as it signals low financial risk and capacity to fund dividends/repurchases. |
| Dividend Increase (5 %) | Higher payout signals confidence in cash generation | May attract income‑focused investors, potentially lifting the stock price and P/E. |
| Share‑Repurchase Program ($300 M) | Reduces share count, boosting EPS and potentially the P/E | Also signals management’s belief that the stock is undervalued. |
Bottom line: The cloud‑revenue acceleration and enhanced cash‑flow generation are the two primary drivers that could push the market to assign a higher-than‑historical P/E and EV/EBITDA to OTEX, especially if peers are growing slower in the cloud segment.
5. Quick “Next‑Steps” Checklist for You
- Grab the latest market data (share price, market cap, debt, cash).
- Pull the most recent EBITDA figure from the full earnings release (or the 10‑K).
- Calculate P/E and EV/EBITDA using the formulas above.
- Retrieve historical multiples (5‑year average) from a financial data platform.
- Identify a peer set (e.g., Microsoft, IBM, ServiceNow, SAP, Adobe, Atlassian) and collect their current P/E and EV/EBITDA.
- Populate the comparison table and interpret the results using the framework in Section 3.4.
If you would like a concrete calculation, please provide the current share price, shares outstanding, total debt, cash balance, and the disclosed EBITDA (or A‑EBITDA). With those numbers I can generate the exact P/E and EV/EBITDA and place them side‑by‑side with historical and peer benchmarks.