Is Micro Focus International a good business software stock to invest in?

Enterprise software company Micro Focus International (MFGP) has lost much of its momentum over the past year due to disappointing sales trends. While the company remains optimistic about its outlook, its weak profitability could raise concerns among investors. So, is it worth betting on the stock now? Read on, let’s find out.

Micro Focus International Plc (MFGP) in Newbury, UK, provides enterprise customers with a wide range of software solutions, including business, identity access, security and operations management capabilities. The company also offers consulting services to companies that wish to extend their IT infrastructure, upgrade it or transfer it to the cloud.

Shares of the company are down 33.1% over the past year and 12.6% over the past month to close yesterday’s trading session at $4.56. Moreover, it is currently trading below its 52-week high of $7.59, which it reached on June 25, 2021.

MFGP’s revenue fell 3.4% year-over-year to $2.89 billion in its fiscal year ending October 31, 2021. Its operating loss was $265 $.6 million and its adjusted EPS from continuing operations was 144.93 cents, compared to 154.37 cents. in fiscal 2020. Additionally, in January, Moody’s has issued B1 grades new Micro Focus term loans with a negative outlook.

Here’s what could shape MFGP’s performance in the near term:

Mixed profitability

MFGP’s trailing 12-month operating cash flow of $200.60 million is 135.1% higher than the industry average of $85.32 million. Its gross profit margin of 73.3% over the last 12 months is 45.5% above the industry average of 50.4%. However, its trailing 12-month ROA, net profit margin, and ROE are negative 4.1%, 14.6%, and 14.4%, respectively, compared to their industry averages. In addition, its 0.27% in the last 12 months asset turnover rate is 57.5% below the industry average of 0.63%.

Updated assessment

In non-GAAP forward P/E terms, the stock is currently trading at 3.10x, 83.4% below the industry average of 18.65x. Furthermore, its EV/Futures Sales of 1.98x is 28.9% lower than the industry average of 2.78x. Additionally, MFGP’s 0.57x futures price/sales is 79.8% below the industry average of 2.81x.

POWR ratings reflect uncertainty

MFGP has an overall C rating, which equates to a neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight distinct categories. MFGP has a C for Quality and Stability. The company’s mixed profitability is in line with the Quality rating. Moreover, the title’s 2.42 beta is in line with the stability rating.

Among the 157 shares listed F Software app industry, MFGP is ranked #60.

Beyond what I’ve stated above, you can view MFGP Ratings for Growth, Momentum, Value and Sentiment here.

Conclusion

While the company’s long-term strategic collaboration with Amazon’s cloud computing company and deals with a few other big cloud companies could support its long-term growth, its declining revenue is concerning. Additionally, the stock is currently trading below its 50-day and 200-day moving averages of $4.97 and $5.30, respectively, indicating bearish sentiment. We therefore believe that investors should wait for MFGP’s outlook to stabilize before betting on the stock.

How does Micro Focus International Plc (MFGP) compare to its peers?

Although MFGP has an overall rating of C, one might want to consider its industry peers, Commvault Systems Inc. (CVLT), Rimini Street Inc. (RMNI) and Enghouse Systems Limited (EGHSF), which have an overall rating of A (Strong Buy).

Click here to view our Software Industry Report for 2022

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Shares of MFGP rose $0.06 (+1.32%) in premarket trading on Tuesday. Year-to-date, the MFGP is down -13.64%, compared to a -14.32% rise in the benchmark S&P 500 over the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate.