Why Shares in Aspen Technology Soared in November

What happened

Shares in asset optimization software company Aspen Technology (NASDAQ:AZPN) surged 22.4% in November according to data provided by S&P Global Market Intelligence. The move comes as the company’s first-quarter 2021 results, released early in the month, helped to allay fears over the company’s growth trajectory.

Aspen’s software helps process industries companies better run their assets through digitization. For example, a chemicals processing plant can use the software to model the plant in order to predict and understand the consequences of a failure.

An industrial plant with digital icons floating above it.

Aspen Technology helps process industries optimize their assets. Image source: Getty Industries.

The stock has been a key battleground for investors in 2020. The bulls will focus on the strong long-term secular growth prospects of digitizing the industry. The bears will point out that Aspen sells into some very challenged industries with around 41% of revenue coming from energy and a further 26% from engineering and construction companies in the oil and gas industry.

Although Aspen wasn’t able to release its full results for the quarter due to a delay in filing its annual report on form 10-K at the SEC, what Aspen did report pleased investors. The annualized value of its contracts (defined as annual spend) is expected to be $596.5 million at the end of the quarter, an 8.8% increase over the same period last year. Furthermore, management reiterated guidance for 6% to 9% growth in annual spend in full year 2021.

So what

In the context of a weak price of oil and the reluctance of process industries to commit to heavy capital spending while there are many questions around the economy and the energy markets, the results are pretty decent.

Given that many companies in the industry have already set their budgets for 2020 it’s unlikely that Aspen will see any kind of lift before the year is out, but the fact that contract value continues to grow at a high-single-digit rate gives confidence for 2021.

Now what

Clearly Aspen has some very strong underlying secular trends behind it, but investors will still be keeping a keen eye out for its end markets going into 2021. Not least because the company currently trades at 26 times forward earnings estimates. It’s an exciting company, but it still faces some near-term headwinds.

 

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