On Friday, BofA Securities maintained its Underperform rating on Guidewire Software Inc . (NYSE: NYSE:GWRE), with a steady price target of $135.00. The decision comes despite the company's first-quarter results, which indicated solid performance but did not surpass the high expectations set after a strong fourth quarter in 2024 and significant recent share gains.
Guidewire's reported revenue increase was largely attributed to the strength of its Services segment, yet the company chose not to revise its Annual Recurring Revenue (ARR) guidance upward. Among the highlights of the quarter were the strong performance with large Tier-1 insurers, continued gross margin expansion to 60.8%, and a reacceleration of subscription revenue growth, bolstered by the maturing Guidewire cloud platform.
InvestingPro analysis reveals the company maintains healthy financials with a current ratio of 2.66 and revenue growth of 12.9% over the last twelve months.
However, BofA Securities expressed caution regarding Guidewire's valuation, noting that the company's premium multiple on an enterprise value to revenue (EV/Rev) and EV/Rev/Growth (EV/Rev/G) basis stands at 0.8x. This valuation is higher than that of its software peers and allows little room for errors, which could disappoint investors holding elevated expectations. InvestingPro's Fair Value analysis suggests the stock is currently overvalued, with 13 additional ProTips available to subscribers.
This sentiment was reflected in the market response, as Guidewire shares fell 15% on Friday, despite what was considered a relatively solid financial report and an overall "GOOD" Financial Health score.
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