On Friday, B.Riley adjusted its outlook on American Software (NASDAQ:AMSWA) shares, reducing the price target to $14 from $16, while continuing to endorse the stock with a Buy rating.
The adjustment follows the company's fourth-quarter results for fiscal year 2024, which were disclosed after the market closed on Thursday.
American Software's revenue outpaced both the analyst's projections and the consensus, thanks to a boost in professional services revenue.
However, adjusted EBITDA fell short of expectations, impacted by one-time expenses linked to the Class B share conversion. Excluding these expenses, the figures aligned with forecasts.
The company is experiencing healthy demand, as indicated by a double-digit growth in its sales pipeline. Nevertheless, delays in contract approvals and project initiations are impacting short-term recurring revenue.
B.Riley remains optimistic, citing the company's focus on its core supply chain planning operations, the transition of legacy customers to cloud services, and enhanced artificial intelligence features on the Logility platform.
B.Riley has revised its fiscal year 2025 and 2026 estimates for American Software downward and has set the new price target using an FY25E enterprise value/sales multiple of approximately 3.5 times.
This multiple is in line with the company's three-year median trading multiple and reflects a decrease from the previous multiple of around 4.25 times.
The firm acknowledges the current sales environment's challenges but points to American Software's robust financial position, with $83.8 million in cash reserves and no debt.
Efforts to streamline the capital structure, including the potential conversion of Class B shares in August, and the anticipation of a surge in SaaS revenue growth in the second half of fiscal year 2025 and fiscal year 2026, are expected to yield a positive risk/reward balance for investors. The projected SaaS revenue growth is high-teens year-over-year at the end of FY25, accelerating to 20% year-over-year in FY26.
In other recent news, American Software Inc. announced its Q4 results, showing a 5% decline in total revenues to $25.4 million, while subscription fees rose by 8% to $14.1 million.
The company also revealed a strategic shift towards its core supply chain software and a plan to rebrand as Logility. This move was accompanied by the acquisition of Garvis and the launch of DemandAI+, marking a major step in American Software's AI strategy.
The company provided initial fiscal year 2025 guidance, projecting total revenue between $104 million and $108 million, and adjusted EBITDA ranging from $15 million to $16.4 million.
The firm expects a significant increase in cloud conversions and bookings in the second half of the fiscal year, which should positively impact FY 2026 revenue.
The company's transition towards a subscription-based model and cloud services aligns with current market trends, despite a cautious investment market.
The completion of the transition to a single-class stock structure is anticipated to broaden appeal to investors. These are the latest developments in American Software's strategic efforts to grow in the evolving industry.
InvestingPro Insights
As we look closer at American Software's financial health and market performance, recent data from InvestingPro provides a deeper understanding of the company's valuation and stability. With a Market Cap of $343.16M and a P/E Ratio at 28.7, the company shows a premium valuation which reflects in part its strong balance sheet, holding more cash than debt. This aligns with B.Riley's confidence in the firm's robust financial position.
An InvestingPro Tip highlights that American Software has maintained dividend payments for 22 consecutive years, which is a testament to its financial resilience and commitment to shareholder returns, evidenced by a notable Dividend Yield of 4.26% as of the last payment. Additionally, the company's low price volatility and the fact that its liquid assets exceed short term obligations, provide investors a sense of stability in uncertain market conditions.
While analysts anticipate a sales decline in the current year, the company's long-term focus on enhancing its core supply chain planning operations and transitioning legacy customers to cloud services, as noted by B.Riley, may counterbalance near-term headwinds. Moreover, with a Gross Profit Margin of 58.82% over the last twelve months, American Software demonstrates its ability to retain earnings efficiently.
For those considering a deeper investment analysis, InvestingPro offers additional insights on American Software, including a comprehensive list of 10 additional InvestingPro Tips. Readers looking to take advantage of these insights can use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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