PRFT is a beaten down stock that looks attractive, possible take over

On April 30, Bloomberg reported that individuals familiar with the matter said that Perficient, Inc. (PRFT) is considering selling the company and is gauging buyer interest.

Finding a buyer may not be that difficult as the stock is looking attractively valued having fallen nearly 70% from its peak in 2021 while also growing earnings.

Cory Mitchell, an analyst with Trading.biz said, “PRFT has grown EPS by an average of 28.1% per year over the last five years. While EPS hasn’t gone up every year, EPS and sales are in an overall uptrend.

“EPS was $2.76 in 2023 and industry analysts project $4.05 per share in 2024 and $4.54 per share in 2025. The Price/Earnings (P/E) is near the lowest it has been in the last five years.

“It usually trades at a P/E well above 20 and it is currently at 15.75 with a forward P/E of near 10. If the company delivers close to $4.5 in earnings per share in 2025, with a more typical P/E of 20, that gives a share price near $90. The stock closed on April 30 at $47.26.”

Over the next couple of years, the stock could be worth double what it is now if the company generates the growth expected in 2024 and 2025. The first insights on whether the company can do that will come on May 24 when it publishes its latest quarterly earrings.

Even if the company generates only $3.5 per share over the next couple of years, that still puts the share price near $70 based on a more typical P/E ratio of 20. For comparison, the P/E for the S&P 500 is 27, and the average P/E for stocks in Perficient’s industry is 34. The company moving back to a P/E 20, or even 25, is a reasonable assessment.

The stock has swung back to being undervalued after investors euphorically bid the stock higher (overvalued) in 2021. Many stocks go through this cycle, oscillating between overvalued and overvalued.

Here are some additional statistics on Perficient:

• Increased sales by an average of 12.1% per year over the last five years.
• The company regularly buys back shares. This means profits are split between fewer shareholders over time. The current buyback yield is 0.7%.
• A “C” financial health rating from Morningstar. This isn’t as good as an A or B rating, but C indicates a company without major financial issues.

There is the risk the company won’t generate strong earnings in the future, and the company may not be bought out. In this case, the share price could keep falling.

The declining share price over the last couple of years is a warning sign that investors don’t believe in the company. That belief could end up being justified if the company falters, or that view could change if the company keeps growing and investors realize they were wrong to doubt the company. In the latter case, the stock could rise significantly over the next couple of years.