A Soaring Tech Stock You Likely Haven’t Considered
One of my favorite companies in the tech world is Citrix Systems, Inc. (NASDAQ:CTXS).
Citrix is a software company founded in 1989. Today, it provides a wide range of services, including analytics, digital workspace, networking, and security technologies. (Source: “About Us,” Citrix Systems, Inc., last accessed July 14, 2020.)
Because many of the company’s services are geared toward enterprise customers, Citrix is not that well known by consumers. But if you want to get a piece of the action in the booming software-as-a-service (SaaS) industry, Citrix stock cannot be ignored.
You see, while you don’t hear about Citrix Systems in the news very often, the company absolutely excels at what it does. To give you an idea, Citrix’s solutions are used at 98% of Fortune 500 companies.
And the company doesn’t just serve large corporations. Its solutions are used at more than 400,000 organizations around the world.
Furthermore, Citrix boasts a highly diversified customer base. Take a look at the chart below. By serving organizations in all kinds of industries, if one customer or industry enters a downturn, the impact on Citrix’s entire business will be limited.
(Data source: “Financial and Business Overview May 2020,” Citrix Systems, Inc., last accessed July 14, 2020.)
The reason why investors like tech stocks is that they often deliver fast growth rates. And that is the case with Citrix.
In the first quarter of 2020, the company generated $861.0 million of total revenue, marking a 20% increase year-over-year. Adjusted earnings came in at $1.73 per share, representing a huge improvement from the $1.27 per share earned in the year-ago period. (Source: “2020 | Q1 Financials,” Citrix Systems, Inc., April 23, 2020.)
What’s more interesting than top- and bottom-line growth, though, is the company’s transition to a subscription-based business. In the first quarter, Citrix’s subscription annualized recurring revenue was $837.0 million, up 50% year-over-year.
From 2016 to 2019, subscriptions as a percentage of the company’s total product bookings increased from 14% to 62%. (Source: “Financial and Business Overview May 2020,” Citrix Systems, Inc., op. cit.)
In the fast-changing tech world, investors like companies with recurring business models. Adding in the sheer growth in Citrix’s financials, it shouldn’t come as a surprise that CTXS stock has outperformed.
Over the past five years, Citrix stock has returned more than 180%.
Citrix Systems, Inc. (NASDAQ:CTXS) Stock Chart
Chart courtesy of StockCharts.com
Another thing to note is that Citrix Systems buys back its own stock. The company repurchased about 8.3 million shares of Citrix stock in the first quarter of 2020. As a result, it reduced the number of shares outstanding, allowing each remaining shareholder to own a slightly larger portion of the company.
The best part is, while the world economy has taken a serious hit from the COVID-19 pandemic, Citrix Systems, Inc. is actually seeing increased demand for its services to address business continuity needs.
Existing customers often chose to expand their relationships with Citrix to ramp up capacity, which led to an increase in the company’s perpetual and on-premises subscription business.
As a result, management is very confident that Citrix will continue to prosper in this challenging economic environment.
President and Chief Executive Officer David Henshall said the following in the company’s latest earnings conference call:
[A]s we consider our guidance for the balance of 2020, we certainly remain cautious due to the unknown financial impact that COVID-19 is going to have on economic output all around the world. However, based on the strength of our first quarter, as well as visibility into the near-term pipeline, we are raising the top end of our full-year outlook for both revenue and EPS. So, of course, we’re going to continue to assess our outlook for the second half of the year as more information on the scope of economic disruption comes to life.
(Source: “Citrix Systems, Inc. (CTXS) CEO David Henshall on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, April 23, 2020.)
For full-year 2020, management is projecting revenue of $3.10 billion to $3.16 billion, and adjusted earnings per share of $5.40 to $5.60. (Source: Citrix Systems, Inc., April 23, 2020, op. cit.)
Previously, the 2020 full-year guidance range was $3.10 billion to $3.13 billion for revenue and $5.35 to $5.55 for adjusted earnings per share. (Source: “2019 |Q4 and Full Year Financials,” Citrix Systems, Inc., last accessed July 14, 2020.)
Whereas many companies have withdrawn their full-year outlook, Citrix Systems, Inc. stands out.
If the company delivers on its guidance numbers, I wouldn’t be surprised to see more investors warm up to CTXS stock.