Main points
- AspenTech’s weekly chart shows higher lows and lower highs over the past few weeks, ahead of the company’s fiscal first quarter report on Wednesday.
- Wall Street expected the plant operations and supply chain management software maker to earn $1.09 per share on revenue of $227.97 million.
- Emerson Electric’s $6 billion investment helped boost the stock in late 2021 and early 2022 as other technologies stumbled.
Enterprise software specialist Aspen Technology (NASDAQ: AZPN) has formed a potential bullish pennant pattern as it pulls back slightly from its October 6 high of $263.59.
Its weekly chart shows a trend of higher lows and lower highs over the past few weeks, ahead of the company’s fiscal first quarter report on Wednesday. Wall Street had expected the maker of plant operations and supply chain management software to earn $1.09 per share on revenue of $227.97 million, up from the year-ago quarter.
A bullish pennant can occur as investors take a breather following a major rally before another catalyst, such as earnings, emerges. It is possible to send a higher price.
According to MarketBeat earnings data, AspenTech has missed earnings expectations for the past three quarters. That hasn’t stopped investors from piling into the stock, sending it higher in many short and longer rolling timeframes. Recent returns are as follows:
- One month: +12.60%
- Three months: +39.13%
- Year-to-date: +66.65%
- One year: +58.59%
AspenTech is part of the enterprise software sub-industry within the tech sector. It has a market capitalization of $16.64 billion. That qualifies as a large cap, but with so many large companies on the market, it’s not yet part of the S&P 500.
It’s part of a fairly attractive industry, as some large enterprise-software companies like it Salesforce (NYSE: CRM), ServiceNow (NYSE: NOW), Snowflake (NYSE: SNOW), Shopify (NYSE: SHOP) and Datadog (NASDAQ: DDOG) are all large caps that have posted strong run-ups in 2020 and 2021. Those stocks have become popular with growth investors and Aspen has remained in stealth mode.
Much of that is due to its smaller market cap. Being a part of the S&P 500 means that a stock automatically attracts more institutional investors because the funds tracking that index must hold positions consistent with the index weightings.
However, as most stocks in that industry stumbled, Aspen took off. In early 2022, as the broader market and techs were among the biggest decliners, Aspen held steady. The stock traded in a tight range between November 2021 and March of this year, then began to rally strongly in May.
Aspen’s business itself is a little more obscure, another factor in its low profile among tech investors until just a few months ago. The company helps enterprise clients optimize their digital assets to keep assets running safer, greener, longer and faster.
Energy and Industrial Customers
Rather than serving well-known tech or consumer-facing businesses, AspenTech has a customer base that includes the chemical and energy industries.
In October last year, industrial technology and engineering firm Emerson Electric (NYSE: EMR) took a 55% stake in Aspen, valued at $6 billion. That transaction closed in May. Two Emerson software units are packaged with AspenTech.
The Emerson deal will also help Aspen enter new industries such as pharmaceuticals and expand into China.
Aspen has had an inconsistent history of revenue and earnings growth. Over the past four quarters, revenue results have ranged from a year-over-year decline of 64% to a year-over-year gain of 209%.
Its three-year revenue growth rate of -8% reflects inconsistent performance.
Irregular Rates of Income Growth
Revenues also grew at irregular rates. The company has been profitable for years, but earnings fell in 2020, from $4.11 per share to $3.78 per share. Its three-year revenue growth rate is -6%.
Despite the negative growth rate, Wall Street expects more going forward. Analysts see earnings coming in at $6.77 per share for fiscal 2023, a gain of 49%. In fiscal 2023, it rose another 13% to $7.62 per share.
According to MarketBeat analyst data, the consensus rating on the stock is “moderate buy.” Given the strong recent run-up, a pullback could occur in the not-too-distant future as investors pocket profits. It is always wise to wait for an earnings release as is the case with AspenTech.
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