Why Enghouse Stock Crashed 11% on Friday

Enghouse (TSX:ENGH) stock dropped by 11% on Friday after earnings that fell year over year, but long-term investors may still want to consider the tech stock.

Amy Legate-Wolfe ❯

@amylegatewolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published March 4, 2022 4:00 pm EST

Enghouse Systems (TSX:ENGH) shares fell by 11% and continued falling on Friday after reporting earnings that came in lower year over year.

What happened?

Enghouse stock announced its first-quarter results on Friday, with earnings coming in lower year over year. Revenue came in at $111.1 million, down from $119.1 million the year before. Net income was up to $21.6 million from $20.6 million in 2020. However, adjusted EBITDA fell to $38.6 million from $44.5 million — a 13% drop.

It’s one of the first companies to really show that there could be losses after the strength that came from the influx of COVID-19. The demand on remote work proved good for Enghouse stock; however, that jump is likely to continue slowing, as there isn’t the immediate demand there was in the past.

So what?

This leaves investors in Enghouse stock in a pickle. While demand is down, it’s not gone. And furthermore, the tech sector in general continues to go through a period of negative impacts from a volatile market. That’s all to say that Enghouse is likely far less in share price than it should be.

Analysts agree, pegging the target price at around $60 as of writing. That’s almost double where Enghouse stock is right now. And despite the negative results, the company is still positive about the future. It managed to continue having solid cash on hand even after $8.9 million in dividend payments. Furthermore, it continues to use the volatile market to find opportunities for acquisitions.

Now what?

Investors in Enghouse stock could see the drop in share price as an opportunity to buy. But it’s certainly not for the faint of heart. It’s likely that the next year or two could be quite volatile for tech stocks in general, Enghouse included. Therefore, don’t buy this thinking you’re about to make that $60 per share in the near future.

That being said, you do, in fact, get an additional dividend of 1.6% as of writing. And it’s one the company believes it can continue supporting for the near term at least. Furthermore, it’s deep into oversold territory with a relative strength index of just 23.28 as of writing. So, it’s a steal by any standards. The question is, when will it rise again?