Cognyte Software Ltd. (CGNT) is scheduled to report its third-quarter (ended October 31, 2023) results on December 13, 2023. The company’s EPS and revenue for the quarter are expected to increase year-over-year. In addition to optimistic analyst projections, several other factors contribute to a bullish outlook on the stock.

CGNT’s EPS and revenue for the third quarter are expected to increase 104% and 9% year-over-year to $0.01 and $77.63 million, respectively. Although the company reported a decline in revenue during the last quarter, it beat analyst estimates by 4.3%.

CGNT’s CEO, Elad Sharon, said, “I’m pleased to report solid Q2 results and that our positive momentum continues. We won deals with existing and new strategic customers who recognize the strength of our innovative technology and the value it delivers. Given the Q2 results, we are raising our outlook for the year for non-GAAP revenue, gross margin and EPS.”

“Looking beyond FYE 24, we believe that our innovative technology, combined with recent AI development and our large customer base, position us well for continued growth,” he added.

Along with reporting positive momentum in the second-quarter results, the company raised its guidance for fiscal 2024. For the year ending January 31, 2024, CGNT’s revenue is expected to be $307 million at the midpoint plus or minus 2%, representing 8.5% growth over the prior-year SIS-adjusted non-GAAP basis. With revenue expected to grow by 8.5%, the company expects its gross profit to grow faster at more than 15% year-over-year on an SIS-adjusted non-GAAP basis.

CGNT now expects positive adjusted EBITDA for the year, given its positive EBITDA in the second quarter and improved revenue and profitability outlook. The company has raised its outlook for three quarters in a row.

During the quarter, CGNT won a deal of more than $20 million with a new national security customer to combat terrorism and national threats. It won another deal for approximately $4 million from a new unit within an existing national intelligence customer to combat terrorist activities. The company locked another deal worth roughly $2.5 million to identify and prevent threats during operations.

The company is also investing in AI to help its customers improve the speed and success rate of their investigations by analyzing large amounts of structured and unstructured data, which helps generate impactful insights.

CGNT’s stock has gained 81.7% in price year-to-date and 122.4% over the past year to close the last trading session at $5.65.

Here’s what could influence CGNT’s performance in the upcoming months:

Mixed Fundamentals

CGNT’s revenue for the second quarter, which ended July 31, 2023, declined 5% year-over-year to $77.05 million. Its non-GAAP operating loss narrowed 94.7% over the prior-year quarter to $928 thousand. The company’s non-GAAP net loss attributable to CGNT widened 124.1% year-over-year to $6.39 million. Also, its non-GAAP loss per share attributable to CGNT widened 125% year-over-year.

On the other hand, CGNT’s non-GAAP gross profit rose 0.7% year-over-year to $53.33 million. Its adjusted EBITDA came in at $2.33 million, compared to an adjusted EBITDA loss of $13.14 million in the prior-year quarter.

Mixed Analyst Estimates

Analysts expect CGNT’s loss per share for fiscal 2024, and 2025 is expected to narrow 73% and 22.4% year-over-year to $0.34 and $0.26, respectively. Its revenue for fiscal 2024 is expected to decline 1.6% year-over-year to $306.94 million. On the other hand, its revenue for fiscal 2025 is expected to increase 6.1% year-over-year to $325.70 million.

Discounted Valuation

In terms of forward EV/Sales, CGNT’s 1.14x is 58.3% lower than the 2.73x industry average. Its 1.29x forward Price/Sales is 53.9% lower than the 2.81x industry average. Likewise, its 2.15x trailing-12-month Price/Book is 27.8% lower than the 2.97x industry average.

Mixed Profitability

In terms of the trailing-12-month gross profit margin, CGNT’s 65.34% is 34.3% higher than the 48.67% industry average. Likewise, its 12.56% trailing-12-month levered FCF margin is 52.4% higher than the industry average of 8.24%. Furthermore, the stock’s 2.41% trailing-12-month Capex/Sales is 3.1% higher than the industry average of 2.33%.

On the other hand, CGNT’s trailing-12-month net income margin is negative 24.78% compared to the 2.35% industry average. Likewise, its trailing-12-month Return on Common Equity is negative 34.48% compared to the 1.11% industry average. Furthermore, the stock’s negative 16.62% trailing-12-month EBITDA margin compares to the industry average of 9.25%.

POWR Ratings Show Promise

CGNT has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CGNT has a B grade for Value, consistent with its discounted valuation.

CGNT is ranked #28 out of 132 stocks in the Software - Application industry. Click here to access CGNT’s Growth, Momentum, Stability, Sentiment, and Quality ratings.

Bottom Line

CGNT’s stock is trading above its 50-day and 200-day moving averages of $4.63 and $4.62, respectively, indicating an uptrend. Several initiatives were taken last year by the company, including adjusting the cost structure, improving its capital structure, and focusing its investments on high-potential opportunities in R&D and sales, which helped the company deliver positive adjusted EBITDA two quarters earlier than projected.

It also had a positive free cash flow during the second quarter. The company won several new deals during the third quarter, strengthening revenue visibility. Moreover, adding artificial intelligence to its solutions positions it well to maintain its leadership in investigative analytics.

Given its discounted valuation, sizable global customer base, and the use of emerging technologies like AI, it could be wise to buy the stock now.

How Does Cognyte Software Ltd. (CGNT) Stack Up Against Its Peers?

While CGNT has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Software - Application industry: eGain Corporation (EGAN), Commvault Systems, Inc. (CVLT), and Nutanix, Inc. (NTNX). To explore more Software - Application stocks, click here.

What To Do Next?

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CGNT shares were unchanged in premarket trading Monday. Year-to-date, CGNT has gained 81.67%, versus a 21.59% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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