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Pegasystems: Its Valuations Compared to the Sector

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Pegasystems: Revenue, EPS, valuations

Pegasystems (PEGA) has missed five consensus revenue estimates and seven consensus EPS estimates in the last 20 quarters. Revenue and EPS have grown at a five-year CAGR (compound annual growth rate) of 12.7% and 18%, respectively. It has a price-to-sales ratio of 5.7x compared to the sector at 10.8x and the S&P 500 at 2.2x.

The company’s PE ratio of 94.4x compares to the sector and the S&P 500 at 154.3x and 22.1x, respectively. It has a dividend yield of 0.2% compared to the sector and the S&P 500 at 0.7% and 2.3%, respectively.

PEGA stock has risen 29% year-to-date.

What contributed to the valuations?

So far this year, Pegasystems has recorded its financial results for fiscal 2017 and the first quarter of 2018, introduced a variety of customer engagement programs, launched new products, and formed partnerships.

  • It announced a partnership with Idio in February for the infusion of AI-driven content across B2B (business-to-business) customer journeys.
  • PEGA’s revenue grew 12% in fiscal 2017, driven by term license, maintenance, cloud, consulting, and training, offset by its perpetual license commitments. Its US and international regions both drove growth. Its EPS grew 12% during the year.
  • The company launched its first AI-powered Sales Coach in March for smarter selling solutions for managers.
  • The company announced the deployment of Pega software in March for the Andhra Pradesh government.
  • It announced the introduction of the GDPR (Pega General Data Protection Regulation) Accelerator in April for companies’ fast-tracking regulatory compliance.
  • In May, it launched AI competencies in Client Lifecycle Management for global banks.
  • Pegasystems’ revenue declined 8% in the first quarter due to lower perpetual and term licenses, offset by maintenance, cloud, consulting, and training. The US and international regions both drove growth. Its EPS declined 64% in the quarter.

Other significant developments in May include the following:

  • The announcement of a partnership with LinkedIn Sales and Marketing Solutions for ensuring power engagement strategies.
  • An initiative by Pegasystems and Virtusa to assist Digital Federal Credit Union, New England’s largest credit union.

Significant developments so far in June include the following:

  • Partnership with Google Cloud for the deployment of Pega solutions on Google Cloud Platform (or GCP).
  • The company announced the Pega Blockchain Innovation Kit to assist banks in testing Ethereum in Pega KYC[1. know your customer] and Pega CLM[2. client lifecycle management].
  • It launched Pega Infinity, which combines AI, robotic process automation, and CRM for enhanced customer experience.
  • The company announced its AI-powered Pega Marketing ability for ensuring faster and efficient outcomes.
  • It launched the Pega ISV (Independent Software Vendor) program for innovative client solutions.
  • It launched Pega Community for developers.

AI ETFs

The iShares North American Tech ETF (IGM) offers a dividend yield of 0.5% at a PE ratio of 27.3x. It has 85% exposure to the technology sector. The PowerShares Nasdaq Internet ETF (PNQI) has a dividend yield of 0% at a PE ratio of 44.8x. It has 63% exposure to the technology sector.

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