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Guidewire Software (GWRE) is back in the spotlight after reporting quarterly revenue that was 26.5% higher year-over-year and above analyst expectations, while pegging this performance to relatively cautious full-year guidance.
Check out our latest analysis for Guidewire Software.
This revision to expectations came after a sharp pullback, with the 30-day share price return down 22.28% and the 90-day share price return down 36.13%, even though the three-year total shareholder return is 118.56%. This suggests that longer-term bondholders have continued to post strong gains as recent momentum has faded.
If this kind of insurance software story has your attention, now could be a good time to see what other names are active in high-growth tech and AI stocks.
With revenue growing at 12.66% annually and net income at 24.42%, the share price having fallen in recent months and trading at a 12.36% discount to one intrinsic estimate, is this weakness an opportunity to buy, or is the market already setting itself up for future growth?
Guidewire Software’s most followed valuation story points to a fair value of $268.38 versus the last close of $160.03, which puts the recent pullback in a very different light.
The industry’s transition to cloud-based systems, particularly in the property and casualty insurance industry, is steadily accelerating, which should facilitate future revenue growth as more customers migrate to the Guidewire Cloud Platform. Strong performance in annual recurring revenue (ARR) and new customer acquisition, including global expansion into markets such as Brazil and Belgium, indicates potential for sustainable revenue growth.
Read the full story.
Curious how this cloud story translates into a higher fair value? The story leans heavily on revenue building, margin expansion and a richer profit profile over time. What’s interesting is how these moving parts combine to justify a price nearly two-thirds higher than where shares are trading today.
Result: Fair value of $268.38 (UNDERVALUE)
Read the story completely and understand what is behind the predictions.
However, that optimistic cloud and AI story still faces real-world hurdles, including execution risk when switching customers from on-premises setups, as well as the pressure of currency fluctuations on ARR.
Read more about the key risks from this Guidewire Software story.
These bullish stories sit uncomfortably next to the way the market is pricing Guidewire today. The stock trades at a price-to-earnings of 147.9x, while the US software industry is at 30.5x and comparable at 42.7x, and the fair ratio is estimated at just 37.3x. This gap points to real valuation risk as expectations decline. How comfortable are you paying such a premium for growth that has yet to be achieved?
