Tyler Technologies, Inc. (NYSE: TYL) has multiple features that make it a high-quality and extremely valuable business and the company’s stock is expected to provide annualized returns of 12% over the next 10 years at current prices, according to a long-thesis by Andvari Associates.
Tyler started its operations as a manufacturing and industrial company and is now a software company with a large number of clients. It is now catering the software needs of local governments, state, ERP, courts and justice and public safety sector. The company has acquired more than 40 companies and its revenue is growing year-by-year.
Tyler has a golden opportunity of expansion and growth in terms of revenue and returns. The company caters to a vast chunk of the market including, state and local bodies, cities and several schools. It focuses on what its customers want and offers customized solutions. Customer retention ratio is high because they offer value to them. According to the report, the retention ratio is 99% which is quite impressive. The company has also been reinvesting in its business and buying back shares.
Talking about Tyler’s valuation, Andvari writes:
“We agree it does have optically high valuation multiples based on current financials. There is also a narrow gap between Andvari’s estimate of fair value and market value. However, these facts mask the opportunity to earn good returns by investing in Tyler. At Andvari, we frequently emphasize that ‘expensive-looking’ stocks aren’t necessarily bad investment opportunities. This is often a function of one’s investment horizon, which, for us, is indisputably long.”
The investor believes that Tyler remains far away from its true and underlying earnings power.
“Margins can expand into the 30% and even 40% range over time. The opportunity for long, steady growth remains large: Tyler only has 10% of a current TAM of $10 billion. Its market share will only go higher as they land and expand with customers that can be with Tyler for life. Andvari is confident Tyler will grow its intrinsic value at low double-digit rates over the long-term and that we as shareholders will consequently earn similar annualized returns.”
Tyler Technologies, Inc. (NYSE:TYL) has seen a jump in activity from the world’s largest hedge funds lately. The stock was in 36 funds’ portfolios at the end of June, versus 30 funds in our database with TYL holdings at the end of March. Our calculations also showed that TYL isn’t among the 30 most popular stocks among funds.
Disclosure: None. This article is originally published at Insider Monkey.