PROS Holdings, Inc: Up 96% This Year, Major Opportunity on Horizon

PROS Holdings, Inc (NYSEPRO) Up 96% in 2019, Major Opportunity on Horizon
iStock.com/Rasica

PROS Holdings Is a High-Prospects Mid-Cap Digital Commerce Play

The battleground for the future of businesses will be in the digital commerce space as companies look to market their goods and services to the vast digital market.

Failure to establish a major presence on the Web would be disastrous for a business. Just ask all of the brick-and-mortar companies that got sideswiped by Amazon.com, Inc. (NASDAQ:AMZN).

The tailwinds for companies offering software solutions to help energize digital commerce campaigns will likely continue to grow insignificance.

On the mid-cap end of the tech segment, an intriguing player is high-flying PROS Holdings, Inc. (NYSE:PRO). Its stock has been explosive on the chart, up a whopping 96% this year and trading at a record $75.40 on August 9.

Advertisement

PROS develops artificial intelligence (AI)-driven solutions that help clients supercharge their digital commerce strategy.

The solutions employ AI and data science to deal with critical functions such as price optimization and management, sales improvement, e-commerce, price quote configuration, and revenue optimization.

PRO stock has come back a bit recently, down about 19% from its high. The stock has broken below its upward trend line and 50-day moving average.

Failure to hold at the current level makes PROS stock vulnerable to drop to the downside support channel between $45.00 and $52.50.

Chart courtesy of StockCharts.com

The momentum behind PRO stock has been impressive, but given that the stock was trading at $28.18 in November 2018, it’s vulnerable for some selling.

I would view the major weakness in the PROS stock price as a possible aggressive investment opportunity.

Significant Revenue Growth Supports Bull Case for PRO Stock

After a relapse in 2015 and 2016, PROS Holdings, Inc. came back with higher revenues in 2017 and record revenues in 2018.

Fiscal Year Revenues (Millions) Growth
2014 $185.63
2015 $168.25 -9.5%
2016 $153.28 -8.9%
2017 $168.82 10.1%
2018 $197.02 16.7%

(Source: “PROS Holdings Inc.,” MarketWatch, last accessed September 20, 2019.)

The company’s revenue growth is estimated to ramp higher by 25.8% to $247.8 million in 2019 and by 18.2% to $292.8 million in 2020. (Source: “PROS Holdings, Inc. (PRO),” Yahoo! Finance, last accessed September 20, 2019.)

PROS Holdings is still negative as far as earnings before interest, taxes, depreciation, and amortization (EBITDA) and profitability go, but the results in those two categories have been improving.

Fiscal Year EBITDA (Millions) Growth
2014 -$4.9
2015 -$42.2 -760.6%
2016 -$55.9 -32.4%
2017 -$53.7 3.9%
2018 -$36.1 32.8%

(Source: MarketWatch, op. cit.)

The generally accepted accounting principles (GAAP) earnings-per-share (EPS) loss narrowed to a four-year low in 2018, and they are expected to continue to improve.

Fiscal Year GAAP Diluted EPS
2014 -$1.27
2015 -$2.23
2016 -$2.47
2017 -$2.46
2018 -$1.86

(Source:  MarketWatch, op. cit.)

On an adjusted basis, PROS Holdings, Inc. is expected to narrow its EPS loss to $0.34 this year, compared to $0.52 per diluted share in 2018. The consensus estimate for the 2020 EPS loss is $0.16 per diluted share. (Source: Yahoo! Finance, op. cit.)

In the first two quarters of 2018, PROS has beaten the consensus EPS. Dating back to the start of 2016, the company has beaten the consensus EPS in 12 of 14 quarters.

PROS Holdings delivered positive free cash flow (FCF) in 2015 and 2018. Given the higher revenues and snaked losses, FCF could continue to be positive.

Fiscal Year Free Cash Flow (Millions)
2014 -$8.1
2015 $8.7
2016 -$21.6
2017 -$26.6
2018 $4.2

(Source:  MarketWatch, op. cit.)

Analyst Take

Ultimately, the prospects for PROS stock will depend on PROS Holdings, Inc. continuing to deliver on its expectations and exceeding them.

The tailwinds are strong; it’s a matter of execution that could vault the stock higher. In the meantime, investors might want to view major price weakness in PRO stock as an aggressive opportunity.