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Bear Of The Day: Aspen Technology (AZPN)

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Aspen Technology (AZPN - Free Report) is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let's take a look at why this stock is the Bear and if there is something the investors should still look to if they hold this stock or if they want to hold it.

Description

Aspen Technology, Inc., together with its subsidiaries, provides asset optimization solutions in the United States, Europe, the Asia Pacific, Canada, Latin America, and the Middle East. The company operates through two segments, Subscription and Software. It supplies asset optimization solutions that optimize asset design, operations, and maintenance lifecycle in various industrial environments. The company software suites include aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONE Asset Performance that are integrated applications, which allow end users to design process manufacturing environments, monitor operational performances, respond and adapt to operational changes, predict asset reliability and equipment failure, and manage planning and scheduling activities, as well as collaborate across these functions and activities. It also provides software maintenance and support, professional, and training services. The company's customers comprise companies that are engaged in the process and other capital-intensive industries, such as energy, chemicals, engineering, and construction, as well as pharmaceuticals, transportation, power, metals and mining, pulp and paper, and consumer packaged goods. Aspen Technology, Inc. was founded in 1981 and is headquartered in Bedford, Massachusetts.

Earnings History

I see an ok earnings history with two beats and two misses over the last four quarters.  That alone is not enough to make a stock a Zacks Rank #5 (Strong Sell).

Estimate Revisions

The Zacks Rank is really all about the revisions of earnings estimates. After a miss, analysts are likely to take estimates for future quarters down as well.  This is just what happened to AZPN.

I see the estimate for this quarter went from $1.31 to $1.18 over the last 60 days.

The estimate for next quarter moved from $0.84 to $0.77 over the same time period.

The full year numbers are also falling with the 2020 fiscal year sliding from $3.63 to $3.37 while next year saw a decline of 34 cents over the same time period.

Big moves lower in the full year earnings estimates are what pushed this stock to a Zacks Rank #5 (Strong Sell)

Valuation

When I see the topline contracting by 10% and a forward PE of about 30x, I tend to stay away.  I see the price to book multiple at 17.7x is also pretty rich as is the 11x price to sales multiple.

Margins have been coming in over the last 3 quarters so investors would be wise to continue to watch this stock to see if there is improvement in the margins.

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