Is Tyler Technologies (TYL) Modestly Undervalued?
Despite a day's gain of 2.59% and an Earnings Per Share (EPS) (EPS) of 3.87, Tyler Technologies Inc (NYSE:TYL) has experienced a 3-month loss of -1.44%. This raises the question: Is the stock modestly undervalued? Through a careful valuation analysis, we aim to provide insights into this question.
About Tyler Technologies Inc (NYSE:TYL)
Tyler Technologies provides a complete suite of software solutions and services that cater to the requirements of local government entities such as cities, counties, schools, and courts. The company's core products include Munis, the principal ERP system, Odyssey, the court management system (CMS), and payments. Additionally, Tyler Technologies offers various add-on modules and outsourced property tax assessment services.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our unique method. The GF Value Line provides a snapshot of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
The stock of Tyler Technologies (NYSE:TYL) is believed to be modestly undervalued, according to our GuruFocus Value calculation. This estimate of fair value suggests that if the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $388.47 per share and a market cap of $16.30 billion, Tyler Technologies stock appears to be modestly undervalued.
Being relatively undervalued, the long-term return of Tyler Technologies' stock is likely to be higher than its business growth. For companies that may deliver higher future returns at reduced risk, please refer to this list.
Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, a careful review of a company's financial strength is crucial before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Tyler Technologies has a cash-to-debt ratio of 0.15, ranking worse than 89.99% of companies in the Software industry. Based on this, GuruFocus ranks Tyler Technologies's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Tyler Technologies has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $1.90 billion and Earnings Per Share (EPS) of $3.87. Its operating margin is 10.96%, ranking better than 74.96% of companies in the Software industry. Overall, GuruFocus ranks the profitability of Tyler Technologies at 9 out of 10, indicating strong profitability.
Growth is probably the most critical factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Tyler Technologies is 17.2%, ranking better than 69.77% of companies in the Software industry. The 3-year average EBITDA growth rate is 15.4%, ranking better than 60.44% of companies in the Software industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Tyler Technologies's ROIC was 4.33, while its WACC came in at 9.03.
Conclusion
In conclusion, the stock of Tyler Technologies (NYSE:TYL) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 60.44% of companies in the Software industry. To learn more about Tyler Technologies stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
