He raised his rating on the stock from "hold" to "buy" and left unchanged his US$25.50 price target, which represents upside of roughly 29% on the current share value. "The market growth projections as well as the recent quarterly results reported by Open Text comparables should provide increased confidence that Open Text's upcoming fiscal 2007 fourth quarter results should also exhibit good growth," Mr. Rhee said in a research note.
He elaborated, noting that Open Text competitor, Interwoven Inc. (IWOV), recently reported 11% year-over-year growth in total revenue at the same time bellwether software companies SAP AG (SAP) and IBM Corp. (IBM) were also reporting healthy growth figures. Mr. Rhee added that industry research firm Gartner has forecast the ECM market will grow 12.9% per year until 2010, from approximately US$2.9-billion to US$4.2 billion.
That said, the analyst's bullishness going forward is tempered somewhat by Open Text's lack of disclosure regarding Hummingbird's contribution to the company since it was acquired last year, as well as management's decision not to provide guidance over the past three quarters.
"Lack of disclosure provides uncertainty about the growth profile for the Hummingbird business and the historical Open Text business."
OTEX 1-year chart