Another quarter and somewhat disappointing earnings from software company PTC. The results were aligned with management’s expectations. Still, investors were expecting more given that the economy is getting better and the fact that PTC’s partner, Rockwell Automation, updated its guidance toward the high end of its past range. Rockwell gives automated solutions and PTC gives complimentary augmented reality and internet of things solutions. Is it time to purchase the stock while it is dipping or run away?
Revenue growth in PTC’s product group came in lower than what management had wanted. More on that in a minute.
The investment case for purchasing PTC stock is based on its core product type, computer-aided design (CAD) and product lifecycle management (PLM), expanding at a high-single-digit to low-double-digit percentage over the medium term. The company is giving its PLM and CAD solutions as an SAAS option, and management thinks this will give growth in the future.
However, the fascinating part is that their growth product types (IoT and AR apps), are forecasted by executives to grow at a 30%-plus rate over the short term. AR and IoT are at the heart of the 4th industrial revolution, where companies will connect real world assets with the digital world to achieve greater productively.
Unfortunately, the uptick in PTC’s growth products was somewhat disappointing. Organic ARR y/y growth at a constant currency was at 23% in Q3, after an increase of 27% in the past quarter.
Should you buy it?
On balance, I believe the answer is “yes.” PTC’s growth is still great; it just has not been at the level that many investors wanted it to be for in 2021. No matter, the numbers are still inside management’s guidance, and it does not make sense to judge a long-term growth stock on the back of a couple of somewhat disappointing earnings quarters.
That said, investors will be wanting to see a much better report in the Q4 reports with some proof of growing demand in the growth product portfolio going into a new fiscal year. Indeed, Heppelmann thinks that PTC’s IoT business will be ended the fiscal year on a “better note.” If he is right, then the recent lowering will prove a great buying opportunity.
Author: Steven Sinclaire