Digital Transformation Means More Upside for Guidewire Stock

GWRE stockGWRE Stock to Ride High on Improving Performance

Today’s stock represents one of our favorite methods to invest and benefit from trending technology stocks. The “picks and shovels” way of stock investing helps us in benefiting from promising trends without exposing us to the excessive risks that come with investing in a particular industry. There are many examples of such stocks which investors should consider to reap rich rewards.

Case in point being Guidewire Software Inc (NYSE:GWRE), which is the leading provider of software products for property and casualty (P&C) insurers. The company’s software serves as a technology platform for P&C insurance carriers. The three key elements of the “Guidewire InsurancePlatform are core transaction processing, data management and analytics, and digital engagement. These work together to strengthen its customers’ ability to adapt and succeed.

Enterprise software for the insurance industry is a field with a lot of potential as more insurers increase their spending on software to become more efficient and productive.

Globally, insurance companies are increasing their spending on IT in order to survive and grow in the changing digital landscape. This is good news for GWRE stock.

According to estimates by Celent, LLC, all around the world, insurance IT spending is likely to touch $184.8 billion by the end of 2017 and grow to over $200.0 billion in 2018. This is due to the growing industry trend toward digitization, data analytics, and legacy and ecosystem transformation, etc. (Source: “IT Spending in Insurance: A Global Perspective, 2017,” Celent, LLC, April 6, 2017.)

P&C insurance—which consists primarily of auto, home, and commercial insurance—accounts for a big chunk of the insurance industry and will therefore benefit from the rising investments. This would offer players like Guidewire lots of opportunities to grow and more reasons for GWRE stock to post new highs.

As insurers turn toward simplifying their processes, engaging customers digitally, and using sophisticated data analytics, Guidewire Software is well positioned to capitalize on these opportunities. Moreover, the company has been making acquisitions to gain expertise and expand its product offerings.

It acquired ISCS, Inc. last December, in order to provide a cloud-based, all-in-one system that supports the insurance life cycle. ISCS focused on P&C insurers, and the company’s expertise and technology would help Guidewire provide more choice to its customers.

Early last year, Guidewire acquired EagleEye Analytics, Inc. to provide predictive analytics products specifically designed for P&C insurers. These products help the companies apply predictive analytics to make better decisions across the insurance life cycle.   

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The key functional areas in P&C insurance are underwriting and policy administration, claims management, and billing. Guidewire addresses these pain points of the insurers with its wide product portfolio. The insurance players have started taking their digital and analytics needs seriously, and Guidewire is gaining from the upcoming opportunities.  

The company is also gaining good customers of late. Just last month, Vermont Mutual Insurance Group selected Guidewire for cloud-based, all-in-one solutions that would help insurers increase business agility and lower costs. Also, California Casualty Insurance Company extended selection of Guidewire Systems to increase its growth and profitability. This bodes well for GWRE stock.

Guidewire announced its third-quarter results last month, and both revenue and profitability exceeded guidance. The license revenue was $59.0 million, up 29%, and the total revenue was $123.4 million, which is an increase of 25% year-over-year. The performance was boosted by a diverse mix of deals in the quarter.

GWRE stock is up 39% year-to-date and has returned over 140% in the last five years. With the strong demand for company’s solutions, the stock is likely to remain buoyant in the coming years.   

GWRE stock chart

Chart courtesy of StockCharts.com

The Bottom Line on Guidewire Stock  

This picks-and-shovels play supplies software to the P&C insurance industry, which is looking at technology to build better customer-centric and efficient processes. The company’s products are seeing wider market adoption and the momentum is likely to continue in the coming days, which bodes well for Guidewire stock.

As more customers pick Guidewire software to upgrade their technology platforms and undergo digital transformations, investors could expect more gains for Guidewire stock.

The time is ripe for the picks-and-shovels player as the insurance industry is witnessing a digital transformation, which is unlikely to slow down in the coming years. With the way Guidewire’s products are gaining traction in the market, GWRE stock is likely to see better days ahead.

As the stock is hovering near its record highs, investors could consider buying on dips and participating in this promising trend.