Morgan Stanley Recommends Buying "Underappreciated" Tax Software Stock with Potential 20% Upside
According to Morgan Stanley, tax software stock Vertex presents an opportunity for investors due to its "underappreciated growth." The firm has resumed coverage of the stock with an overweight rating and a price target of $25 per share. This forecast suggests a potential upside of over 20% from the stock's previous closing price of $20.69. In 2023 alone, Vertex stock has already seen an impressive increase of approximately 46%.
Unlocking Growth Potential
Vertex embarked on a multi-year growth investment program when it entered the public markets about three years ago. This program aimed to tap into a $20 billion total addressable market for indirect tax management software. Analyst Chris Quintero notes that this strategic plan is now yielding positive results. With the investment program set to conclude in the second quarter of 2023, Vertex is poised for an inflection point. Quintero predicts that revenue will accelerate from low-to-mid teens to mid-to-high teens year-over-year, while the free cash flow margin will rise from 1% in FY22 to high-teens by FY25.
Valuation and Profitability
Quintero believes that the current valuation of Vertex stock does not fully reflect the upcoming inflection point. As the investment cycle concludes, Vertex can now focus on expanding margins and driving profitability. The end of the investment cycle will lead to more moderate expense growth and increased operating leverage, providing a favorable environment for the company's profitability.
In conclusion, Morgan Stanley's recommendation to buy Vertex highlights the potential for significant growth in the tax software stock. With an expected upside of over 20%, investors may find this under-the-radar opportunity appealing. Vertex's strategic investment program and upcoming inflection point position the company for accelerated revenue and improved profitability in the years to come.
Conclusion
The recommendation by Morgan Stanley to invest in the "underappreciated" tax software stock, Vertex, presents a compelling narrative for new businesses. This situation highlights the potential for overlooked opportunities in the market and the importance of strategic investment.
Implications for New Businesses
For new businesses, particularly those in the tech and software sectors, Vertex's success story serves as a valuable lesson. It underscores the importance of strategic planning, market assessment, and investment in growth opportunities. It also emphasizes the potential rewards of patience, as the benefits of Vertex's multi-year growth investment program are now coming to fruition.
Future Considerations
The anticipated inflection point for Vertex may inspire new businesses to consider their own growth trajectories. The potential for increased revenue and improved profitability, as predicted by Quintero, may encourage businesses to evaluate their own strategies and investment programs. Furthermore, the prospect of expanding margins post-investment cycle offers valuable insights into financial management.
In conclusion, the "hot take" from this development is the potential for significant growth in seemingly underappreciated sectors or stocks. For new businesses, this serves as a reminder to remain open to overlooked opportunities, invest strategically, and plan for long-term growth.
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