After Steady Growth Tyler Technologies’ Stock Has Run Out Of Fuel

by Trefis Team
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Tyler Technologies’ stock (NYSE: TYL) has rallied 27% since late March (vs. about 50% for the S&P 500) to its current level of $337. This is after falling to $266 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. The stock is currently about 1% above its February 2020 high of $331. Are the gains warranted or are investors getting ahead of themselves? We believe that the stock recovery is justified, but the stock has ran out of room to grow in near term. Why is that? Tyler Tech provides Software and Services for the public sector in the US. The company, in response to coronavirus lockdown, offered a Virtual Court Offering which has already been adopted in 60 courts across the US in late April, generating positive sentiments in the market. For Q2 2020 the company beat consensus estimates for earnings. The market seems to have factored in the news with the stock reaching an all-time high in early June. We also have a detailed comparison of Tyler Tech’s stock performance during the current crisis with that during the 2008 recession in our dashboard analysis.

How Did Tyler Tech Fare During 2008 Downturn?

We see TYL’s stock remained flat from levels of $14 in October 2007 (the pre-crisis peak) and in March 2009 (as the markets bottomed out) – implying that the stock was resilient to the downturn. While the broader S&P fell by about 51%.

Further, TYL’s stock rose steadily post the 2008 crisis to about $19 in early 2010 – rising by about 47% between March 2009 and January 2010, as against the S&P which bounced back by about 48% over the same period.

In comparison, TYL’s stock lost 20% of its value between 19th February and 23rd March 2020, and has already recovered 27% since then. The S&P in comparison fell by about 34% and rebounded by about 50%.

Is The Recovery Warranted & Can We Expect Further Gains?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely quieted investor concerns about the near-term survival of companies. The flattening of Covid cases in the worst hit U.S. and European cities is also giving investors confidence that developed markets have put the worst of the pandemic behind them.

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending.

Tyler Tech’s revenues saw a steady growth in the first quarter of its financial year (FY ends in October). For Q2 2020 revenues fell by 1.5% to $271 million for the quarter. Operating Income was up by 12% as the company had significant savings in commissions, travel, marketing, health claims, and other employee related costs. In response to the Covid crisis, Tyler Tech has offered a virtual court solution which has already been adopted by nearly 60 courts in the US by the end of April.

Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to boost market expectations. Following the Fed stimulus — which helped set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view, with investors focusing their attention on 2021 results.

So, while Tyler Tech may have ran out of room to grow, want out-performance? Try guessing the % returns for our Pershing-inspired portfolio – based on billionaire Bill Ackman’s firm Pershing Square – vs. the S&P over the last 1 week, 1 month, 3 months, YTD or even 3 years. Our portfolio combines high growth, quality, and risk mitigation criteria in an interesting way.

 

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