Citrix Systems Stock Up 8% Today – Time to Buy CTXS Stock?

The price of Citrix Systems stock is up 8% today in pre-market stock trading action today after rumors started to circulate about a potential joint bid for the company from two reputed investment firms.

An exclusive report from Bloomberg stated this morning that Vista Equity Partners and Elliot Management Corp could potentially join forces to buy the software company for an undisclosed amount.

Citrix’s equity is currently being valued at $10 billion based on yesterday’s closing prices. The company has been struggling with volatile bottom-line performance and stalled sales growth for years. The sources cited by Bloomberg said that negotiations were still at an early stage.

Earlier in November, Citrix reported better than expected quarterly profits of $1.20 per share for the third quarter of the year while revenues increased slightly to $778.4 million compared to $767.2 million the company brought during the same period a year ago.

What could be expected from this tech stock after this interesting development? In this article, I will be assessing the technical and fundamental situation of Citrix Systems stock to outline plausible scenarios for the future.

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Citrix Systems Stock – Technical Analysis

The price of Citrix Systems stock has been on a pronounced downtrend since July last year as the company’s top and bottom-line performance disappointed the market at a time when most software developers were experiencing positive tailwinds amid the pandemic.

The stock is currently trading 42% below its 52-week high of $145.2 per share while it has shed nearly 36% of its value since the year started.

The downtrend has pushed the company’s share price well below its 200-day simple moving average and there are no signs of a turnaround yet.

That said, the intra-channel decline that the stock has experienced since September is pushing the price to tag the lower bound of the formation and today’s pre-market uptick could lead to a break above the falling wedge pattern highlighted in the chart.

If that break occurs, chances are that CTXS stock could experience a short-term jump, possibly aiming for the $90 level as a first stop – the stock is already hitting that threshold in pre-market action. Meanwhile, confirmation of today’s acquisition rumors could push the price near the 200-day simple moving average of $110 per share.

Momentum indicators are favoring this view as the Relative Strength Index (RSI) is on an uptrend and heading to jump above the 50 level (bullish) while the MACD has crossed above the signal line and is being accompanied by steadily increasing positive histogram readings.

Citrix Systems Stock – Fundamental Analysis

Citrix revenues have been growing at a slow pace in the past five years or so and the pandemic didn’t do much for the business as top-line results increased only 7.5% last year compared to annual growth rates ranging from 1% to 5% in previous periods.

Meanwhile, the company’s GAAP operating margins have been quite volatile and have remained confined within the mid-to-low single-digits and even turned negative in some years.

As of yesterday, the stock was trading at around 3 times its forecasted sales for the entire 2021 fiscal year while its P/E ratios stood at 44x and 17x on a GAAP and non-GAAP basis respectively.

Practically a third of the firm’s non-GAAP earnings are coming from stock-based compensation adjustments and the amortization of intangible assets. Even though these expenditures do not have an impact on the company’s cash, they are still relevant to the feasibility of its core business, which means that GAAP earnings are perhaps a better reflection of Citrix’s earnings-generation capacity.

Considering the firm’s sluggish revenue growth, volatile operating results, and over-leveraged balance sheet, it seems unlikely that the bid price will be much higher than the current valuation assigned by the market to CTXS stock if a takeover does take place.

In this regard, average P/S ratios for software companies are currently standing at 11.4x but the average net margin for this segment of the industry is 20%. Therefore, a P/S multiple ranging from 5 to 6 seems plausible if a firm offer is made. This would result in an equity valuation of around $16 to $19 billion for Citrix Systems stock.

Since negotiations are still at an early stage, betting on the possibility that the acquisition will happen is primarily gambling. However, from a technical perspective, the price of Citrix could be already poised to experience a technical rebound.

With this in mind, the upside potential seems elevated compared to the downside risk and that may justify taking a long position on Citrix with a tight stop loss and a clearly defined exit price. In this scenario, the ideal stop price would be set below the lower bound of the price channel discussed earlier in the article.

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