Guidewire Software’s stock price has taken a beating over the past six months, shedding 46% of its value and falling to $136.69 per share. This might have investors contemplating their next move.
Following the pullback, is now the time to buy GWRE? Find out in our full research report, it’s free.
Why Is Guidewire Software a Good Business?
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Guidewire Software’s billings punched in at $415.7 million in Q4, and over the last four quarters, its year-on-year growth averaged 21.1%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. 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.
Guidewire Software is extremely efficient at acquiring new customers, and its CAC payback period checked in at 17.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Guidewire Software more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
3. Impressive Free Cash Flow Margin Opens Growth Opportunities
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Guidewire Software has shown impressive cash profitability, driven by its cost-effective customer acquisition strategy that gives it the option to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 21.9% over the last year, better than the broader software sector.
Final Judgment
These are just a few reasons why we think Guidewire Software is a high-quality business. After the recent drawdown, the stock trades at 7.7× forward price-to-sales (or $136.69 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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