Guidewire (NYSE:GWRE), which develops software for the insurance industry, just wrote another chapter in its growth story.
Positive results from Guidewire’s fiscal second quarter sent GWRE shares up more than 18% in midday Wednesday trading, bringing the company’s returns to more than 140% since it came public just more than a year ago.
In Q2, Guidewire’s revenues improved 31% to $72.2 million, and adjusted earnings per share improved similarly to 21 cents per share — both metrics beat Street expectations of $64.26 million and 19 cents per share, respectively.
Unlike other hot recent software IPOs — like WorkDay (NYSE:WDAY) and ServiceNow (NYSE:NOW) — Guidewire has not gotten much attention (except maybe in the IPOPlaybook). In fact, there is much confusion about the company’s business, which often is believed to be cloud-based. (Case in point, on CNBC today, Jim Cramer referred to Guidewire as another hot player in the cloud space.)
While Guidewire does have a cloud version of its software, the fact is many customers generally prefer the traditional on-premise platform, primarily because they don’t want their data held by third-party databases — a reasonable concern considering the insurance industry is highly regulated.
Over the past year, I’ve had a chance to talk to Guidewire CEO Marcus Ryu several times, and one of the key things he points out is how his company has little competition. Mega players like Oracle (NASDAQ:ORCL) have solutions that do not meet the unique requirements of insurance companies. However, over the past decade, Guidewire has built a full suite of applications to help with critical functions like claims, underwriting and billing, which help address the key drivers for insurance companies: growing revenues, customer retention and lowering costs.
Guidewire’s laser-focused solutions have made it easy to pick up more customers, and the launch of a new version of its software boosted the latest quarterly results.
Yet, in terms of the market potential, Guidewire has really just scratched the surface. The company’s software addresses the property & casualty sector, which purchases about $14.5 billion in software per year. So it’s a good bet that Guidewire’s growth will continue.
Still, Ryu’s strategy is to not get too aggressive. In a previous interview, he said:
“While at Ariba, I saw the power of enterprise software and how it can change the economics of an industry. But there also were the dangers of the dot-com era. One was growing too fast. At Guidewire, we look to the long term. This means moderated growth and a focus on the customers.”
Investors should feel good about GWRE, but the smart move would be to hold off on buying if you haven’t already. Instead, as is the case after most blowout earnings reports, you should let the hype subside and buy in at a slightly better price than is offered today.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.