What a brutal six months it’s been for PTC. The stock has dropped 21.4% and now trades at $162.75, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the pullback, is now an opportune time to buy PTC? Find out in our full research report, it’s free.
Why Does PTC Spark Debate?
Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ: PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.
Two Things to Like:
1. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
PTC is extremely efficient at acquiring new customers, and its CAC payback period checked in at 16.8 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.
2. Operating Margin Reveals a Well-Run Organization
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
PTC has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 38%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
One Reason to be Careful:
Weak ARR Points to Soft Demand
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
PTC’s ARR came in at $2.49 billion in Q4, and over the last four quarters, its year-on-year growth averaged 11.6%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments. 
Final Judgment
PTC’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 6.9× forward price-to-sales (or $162.75 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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