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Pegasystems Inc. (PEGA), SAP AG (ADR) (SAP): This Tech Stock Is Finding Its Way Through the Woods

Valuation

Pegasystems trades at a forward P/E of 22 times. This is a conservative valuation given that Pegasystems is a technology company. For example, salesforce.com, inc.(NYSE:CRM) trades at 60 times forward P/E. A well-established SAP trades at 19 times forward P/E. Analysts’ full year 2013 earnings estimates for Pegasystems have risen 7.6% during the last 90 days. It reflects the company’s flexible strategy. Meanwhile, estimates for SAP have dropped 2% and estimates for Salesforce.com have stayed unchanged.

Technology stocks are rarely dividend-rich, and Pegasystems is not an exception. Its dividend yields a minuscule 0.37%. SAP’s dividend yields 1.07%, and Salesforce.com does not pay dividends. Pegasystems is trading at a relatively high 5.1 price-to-book, but it does not seem such high when we look at Salesforce.com’s P/B of 9.

Bottom line

Pegasystems is an attractive stock in the business optimization software world. While a lot of stocks have gotten to sky-high valuations, Pegasystems is valued conservatively. The company has a smart strategy that enables it take part in the possible growth of its competitors. The company has zero debt, which is good for financial stability. I do not expect explosive growth from Pegasystems. Instead, it would deliver stable results and profitability. Not bad in a world of shrinking budgets, right?


Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Pegasystems and Salesforce.com.
Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Tech Stock Is Finding Its Way Through the Woods originally appeared on Fool.com is written by Vladimir Zernov.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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