Agilysys, Inc. Is a High-Prospects Software Stock With Breakout Potential
We all love the mega-cap technology momentum stocks, since they tend to be the drivers behind the direction of the broader technology sector.
The FAANG stocks—Facebook, Inc. (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG), also known as Google—are hot again, and that spells opportunities for the tech sector, especially for companies on the smaller end.
Take the case of small-cap software company Agilysys, Inc. (NASDAQ:AGYS), a developer of point-of-sale; property management; inventory and procurement; workforce management; analytics; document management; and mobile and wireless solutions and services.
Agilysys, Inc.’s solutions are marketed to four major sectors: gaming; hotels, resorts, and cruises; food service management; and restaurants, universities, stadia, and healthcare.
On the chart, AGYS stock is well up from its 52-week low of $11.60 and is approaching its recent high of $21.38, which it achieved on February 25.
The breakout at the one-year resistance level of $16.70 in January was bullish for Agilysys stock.
Chart courtesy of StockCharts.com
The next key resistance level is $21.00, and a move toward $30.00 could materialize if Agilysys moves toward profitability following years of losses.
Next Moves for AGYS Stock Depend on Profitability
Agilysys, Inc. is showing signs of ramping up its revenue picture, but for the stock to take off, the company will need to improve its cost control and move away from losses.
The revenue picture was relatively muted from fiscal 2014 (ending in March) to fiscal 2018, with Agilysys growing its revenue by a combined 25.8%.
|Fiscal Year||Revenue (Millions)|
(Source: “Agilysys Inc,” MarketWatch, last accessed April 12, 2019.)
But there are some encouraging signs on the horizon.
Agilysys is estimated to boost its revenue by 10.6% to $140.85 million in fiscal 2020, then by another 10.3% to $155.4 million in fiscal 2020. (Source: “Agilysys, Inc. (AGYS),” Yahoo! Finance, last accessed April 12, 2019.)
For a small company, the expected growth metrics don’t produce a “wow” feeling, but perhaps it’s an indication that things are finally picking up for Agilysys.
And while the company continues to burn through cash, it has generated positive earnings before interest, taxes, depreciation, and amortization (EBITDA)—with growth in three consecutive fiscal years, at a rate far exceeding revenue growth.
|Fiscal Year||EBITDA (Millions)||Growth|
(Source: MarketWatch, op cit.)
Disappointment surrounds the company’s failure to achieve generally accepted accounting principles (GAAP) adjusted earnings per share (EPS). Estimates call for those losses to continue for at least the next two fiscal years.
|Fiscal Year||GAAP Diluted EPS|
For its soon-to-be-reported fiscal 2019, Agilysys is estimated to report an adjusted loss of $0.33 per diluted share and a loss of $0.39 per diluted share in fiscal 2020. (Source: Yahoo! Finance, op cit.)
The losses are disappointing and will need to be addressed by Agilysys in order to justify a higher stock price.
A plus is that the company managed to deliver positive free cash flow in fiscal 2018 for the second time in three years.
|Fiscal Year||Free Cash Flow (Millions)|
(Source: MarketWatch, op cit.)
The bull thesis for AGYS stock will depend on the company’s ability to improve its profit picture and ramp up its revenue growth rate.
If Agilysys, Inc. can do that, it would provide a catalyst for higher stock prices.