Progress Software Corp: Opportunity for a Double Is Realistic

Here’s Why Institutions & Insiders Are Buying Up PRGS Stock

I’m always on the hunt for growth stocks at a reasonable price. Given how expensive many technology stocks are these days, it’s refreshing to still see some good opportunities in the tech sector.

With that in mind, I like the risk/reward opportunity in small-cap IT play Progress Software Corp (NASDAQ:PRGS).

Valued around $1.9 billion, the company has strong prospects, but Progress Software stock has been underperforming the Nasdaq and S&P 500, with a 0.9% gain this year and a 28.7% gain over the past year.

Progress Software Corp provides software applications aimed at helping the IT departments of companies with their business applications on servers, the cloud, or any other platform. 

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On the below chart, PRGS stock has managed a decent rally from $34.05 in July 2020 to its 52-week high of $49.23 in January 2021. Progress Software stock recovered after a bearish falling knife pattern surfaced in January.

PRGS stock has steadily edged higher with a series of higher lows, and it has attracted buying support on several occasions.

Look for a possible move toward $50.00 and its all-time high of $53.60, which it achieved in January 2018.

Chart courtesy of StockCharts.com

Progress Software Corp Records Great 2020 Results Amid Pandemic

One thing you’ll notice in Progress Software Corp’s financial results was its ability to ride out the pandemic in 2020 and deliver a strong year.

The company’s revenues have been largely flat during the last five years, but Progress Software managed a record $442.2 million of revenue in 2020.

Fiscal YearRevenue (Millions)Growth
2016$405.3N/A
2017$397.6-1.9%
2018$379.0-4.7%
2019$413.39.1%
2020$442.27.0%

(Source: “Progress Software Corp.” MarketWatch, last accessed July 26, 2021.)

As the economy recovers, Progress Software could drive revenue growth of 16.9% to $533.5 million this year. (Source: “Progress Software Corporation (PRGS),” Yahoo! Finance, last accessed July 26, 2021.)

Based on the consensus, the company would be trading at 3.6 times its revenue estimate. That’s not cheap in normal times, but given the current high-valuation market, it’s reasonable.

Progress Software Corp has delivered earnings before interest, taxes, depreciation, and amortization (EBITDA) income in the last five straight years, including a high in 2020.

The company’s EBITDA grew in four of the last five years, and at a faster clip than its revenues in three of those five years.

Fiscal YearEBITDA (Millions)Growth
2016$107.0N/A
2017$134.926.1%
2018$118.4-12.3%
2019$127.98.0%
2020$159.925.1%

(Source: MarketWatch, op. cit.)

Progress Software Corp has been profitable in the last four years, based on generally accepted accounting principles (GAAP) earnings per share (EPS). The fact that the company delivered a five-year high profit of $1.76 per diluted share in 2020 was impressive.

Fiscal YearGAAP Diluted EPSGrowth
2016-$1.13N/A
2017$0.77168.3%
2018$1.0839.6%
2019$0.58-45.9%
2020$1.76202.1%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Progress Software Corp earned $3.09 per diluted share in 2020. This is expected to rise to $3.49 per diluted share in 2021 and to $3.57 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

Based on the consensus in 2020, PRGS stock is attractive at 13.1 times its earnings estimate.

As a bonus, Progress Software Corp has generated positive free cash flow (FCF) in each of the last five years, including a five-year high in 2020. The company’s FCF has grown in four consecutive years, which is impressive.

Fiscal YearFCF (Millions)Growth
2016$97.1N/A
2017$102.35.4%
2018$114.111.5%
2019$124.59.1%
2020$146.417.6%

(Source: MarketWatch, op. cit.)

Progress Software has $604.1 million in debt on its balance sheet, but the company has $362.7 million in cash. (Source: Yahoo! Finance, op. cit.)

The fact that the company produces consistent FCF is encouraging, and it could be used to reduce its debt.

Analyst Take

Institutions love Progress Software stock. About 328 institutions hold the vast majority of the outstanding shares. Moreover, PRGS stock has been attracting insider buying. Over the last six months, insiders added a net 210,789 shares. (Source: Yahoo! Finance, op. cit.)

I suggest that investors look at Progress Software Corp, given the company’s reasonable valuation and the fact that institutions and insiders are on board.