Aspen Technology: Soaring Software Stock Bucks Bearish Trend (NASDAQ: AZPN)

Processor chip, technology environment, blockchain concept


Are you having a hard time finding a winning stock in 2022? It seems that all areas of the market are under attack from the bears. Long-term software stocks, in particular, are under pressure.However, one name almost went through a very positive corporate merger A year ago, it was still paying a token dividend to its investors today. But are stock valuations too high right now?

S&P 500, tech, software down, Aspen tech up

S&P 500, technology stocks, software fell.  AspenTech up.

According to Bank of America Global Research, Aspen Technology (NASDAQ: AZPN) was established in 1981 following the commercialization of an R&D program at the MIT laboratory. The company was established in 1981 and re-established in 1998. AZPN has 3,700 employees and operates in 41 countries. Fidelity noted that the company provides enterprise asset performance management, asset performance monitoring and asset optimization solutions globally. The company’s solutions address complex environments where optimizing asset design, operations and maintenance lifecycles is critical.

In October 2021, industry giant Emerson (EMR) partnered with Aspen Technology to launch industrial software products. The deal brought value to both companies, but Aspen Technology’s shares have soared in a year full of volatility and falling prices. Bank of America sees corporate deals as a key catalyst for revenue growth, margin expansion and diversification.

The Massachusetts-based, $12.5 billion information technology industry software company has not had a positive GAAP earnings over the past 12 months and has not paid a dividend, according to The Wall Street Journal.

In terms of earnings and valuation, Bank of America expects operating profit per share to rise sharply this year and through 2024. The trailing 12-month GAAP earnings are currently negative, but the more conservative profit accounting has also risen sharply in the following years. Still, AZPN still has a high operating multiple and no earnings. All the while, its EV/EBITDA multiple is very tight and free cash flow is low.

AZPN Earnings, Valuation and Free Cash Flow Forecast

AZPN: Earnings, Valuation, Free Cash Flow Forecast

Bank of America Global Research

According to Wall Street Horizon, Aspen Technology’s corporate events calendar has been light on its October 26 unrecognized earnings date after the market closes in the first quarter of 2023. The company recently appeared at the Piper Sandler Growth Frontiers conference in early September.

Corporate Events Calendar

Corporate Events Calendar

Wall Street Horizon

technical tasks

The price action this year has been huge. Given the ongoing global bear market, I haven’t seen such a strong uptrend in a long time. Not-for-profit tech/software has been hit particularly hard, but that hasn’t negatively impacted AZPN’s stock.

I see a near-term breakout for the stock, along with a broader uptrend to support the bullish thesis. My concern, though, is that if the market were more volatile, then the bears could go after the likes of Aspen Technology as a source of funding. Going long here and stopping below the September low of $203 is prudent, but watch out for a market shakeout that has seen sellers in AZPN.

Aspen Technology shares rise amid broader uptrend

AspenTech: Shares move higher amid broader uptrend

bottom line

AZPN’s price action is very bullish, but its valuation is expensive right now and free cash flow isn’t that strong. These are important characteristics of today’s market. Nonetheless, I respect the price action and would therefore be reluctant to call it a fundamental investor sell-off. I think a Hold rating on Aspen Technology now makes sense. Technical traders can go long here with stops below $200.

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