Valuation analysis for Advent Software, Inc. (NASDAQ:ADVS)

Slow but steady is sometimes very good, but slower than before can be dangerous.  Stocks that grow more slowly than they had before eventually experience valuation adjustments, but sometimes the process takes a little while.

ADVS Advent Software Revenue

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Advent Software, Inc. (NASDAQ:ADVS) has a nice steady earnings growth rate, and although the growth rate itself ebbs and flows it still appears to be relatively consistent, in line with revenues too, and those are attractive qualities.

The one concern that investors may have is that earnings growth has not been as strong as it recently was.  Our evaluation of earnings growth compiles trailing 12 month data and evaluates that on a yearly basis to define earnings growth accordingly, but we also discount onetime events to focus on earnings from operations.  Our observation is that Advent Software was recently growing at about 30% but now is growing much less than that.

ADVS Advent Software EPS Earnings Growth

From an earnings growth standpoint, the trough seems to be in place, and it was around 3%.  Most recently, the yearly growth rate for advent has been closer to 6%, and the cycle in earnings growth that we have been witness to before seems to be playing out again.

A continuation of that cycle will be important, because at current levels the PE multiple of 22.94 levied on Advent Software at this time and the 6% earnings growth rate that the company is currently experiencing make the stock price appear rich.

Technical take:

According to our real time trading report for Advent Software the stock appears to be in the process of declining towards longer term support at this time and therefore we would not be buyers of the stock.  We would look to be buyers of Advent Software if the stock tests longer term support, but longer term support would also act as our risk control.  If longer term support breaks lower we would exit this position, but if it holds after it is tested we would expect the stock to increase back towards longer term resistance by rule.

Summary:

Advent Software is not growing as fast as it was, and although there appears to be a trough in place when we look at the earnings growth chart, earnings have not yet begun to recover significantly enough to warrant the current PE multiple, according to our analysis.  The multiple levied on Advent Software at this time and the growth rate that analysts expect going forward make the company appear to be rich.  Given the fact that our technical observations also tell us to avoid the stock until it tests of longer term support, we cannot advise buying the stock at current levels and if support is tested and buy signals trigger we would implement a stop loss if longer term support breaks lower.

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