Guidewire Software: Breaking Out To Record Highs

Summary

• GWRE is breaking out to record highs.
• Its cloud-based solutions are in demand.
• I am buying stock in the name.

Guidewire Software (NYSE:GWRE) is breaking out higher on strong fundamental results. Its share price is reaching new record highs after months of consolidation. The company continues to show strong growth as it brings the P&C insurance industry to the cloud. I am buying stock in the name.

Price Action

GWRE is seeing its share price break out higher on strong investor optimism. As demand continues to grow for the company's cloud-based insurance solutions, revenue and its share price are similarly rising. On its monthly chart below, the company's price action is breaking out to record levels after consolidating since late 2017. The strong move higher on fundamental support signals the move could continue to run.

On its shorter-term chart, GWRE's recent breakout above $83.5 was significant as it had acted as strong resistance in recent months. I am, therefore, buying stock in the name, with a stop-loss point at $83. Should the stock decline back to such levels, it will signal a reversal in investor sentiment, and thus, invalidate my investment thesis.

Source: TradingView

Fundamental Narrative

GWRE is taking insurance digital, which is leading to strong growth. In its most recent quarter, total revenues were aided by significant growth in service revenues as its delivery teams were utilized across all of its geographies, according to management. Its growth in services is largely due to the P&C insurance industry's transition to cloud-based solutions. Subscription sales now represent roughly 43% of new sales year-to-date above the high-end of expectations going into the year. The main drivers of subscription and services revenue are its core solutions, InsuranceSuite Cloud and InsuranceNow.

The company provides software products for property and casualty insurers. It offers Guidewire InsuranceNow, a cloud-based platform that offers policy, billing, and claims management functionality to insurers. The company's products include Guidewire InsuranceSuite comprising Guidewire PolicyCenter, an underwriting and policy administration application.

Cloud-based core systems are a relatively new concept for P&C insurers but are increasing momentum across the industry as a whole. Smaller insurers were early adopters of cloud solutions but the benefits of simplification and risk transfer are increasingly compelling to midsize insurers as well.

Larger carriers are also considering cloud-based approaches for growth initiatives and new lines of business as a future option to transition their large existing books of business to the cloud. The breadth of demand is leading GWRE to continue to invest aggressively in its cloud operations and product services teams.

The company is on pace to double the number of customer wins for InsuranceNow, while continuing to improve its functionality, scalability, and upgrading InsuranceNow service delivery capabilities.

GWRE is also seeing international growth. The company has been busy in EMEA where they see awakening demand in the major Continental European countries. In Q2, GWRE won the largest German-only personal lines carrier, according to its earnings call. This was a significant anchor win and reflects the important investments made in the DACH region.

Robust attachment rates for its digital and data products continue to validate the company's platform value proposition and contribute to its growth. In the most recent quarter, 13 customers purchased digital engagement products, with 11 being new customers. Over 100 customers in more than 25 countries have selected GWRE's digital engagement products, signaling the global demand it is seeing.

Below is a chart of GWRE's share price, revenue, and earnings per share. Since the company went public, its share price and revenue have trended strongly higher together. Its share price is up roughly 4.5x, while its revenue has risen over 3x. Earnings per share have been harder to come by, but the company's focus on growth gives it a pass for now. P&C insurers are clearly excited about GWRE's cloud-based services, which should continue to lead its share price higher in coming years.

Conclusion

GWRE is breaking out higher on strong fundamental results. Its share price is reaching new record highs after months of consolidation. The company continues to show strong growth as it brings the P&C insurance industry to the cloud. I am buying stock in the name.

Analyst’s Disclosure: I am/we are long GWRE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[luckymonkey]

I am also long. Some may prefer to look at FINX. It is the only ETF with substantial exposure to GWRE, currently around 5%. Other holdings >5% in FINX include SQ, PYPL, INTU, and TREE.

[JKB2004]

Thanks for taking the time to write this article on GWRE. It's not a very well known name yet consider it as the VEEV for Insurance. I've had a long position since March last year and am up 40% on it. Not a super sexy business yet a long term secular winner for certain.