Technology growth opportunities are still around if you know where to look. One such story is outside Boston, near I-95 in Needham, an otherwise-nondescript office building on Kendrick Street with an unobtrusive sign reading PTC (NASDAQ:PTC), with a box-like corporate logo next to it.
PTC produces ThingWorx, an industrial automation platform adding intelligence to machinery. What’s called the Industrial Internet of Things is just now getting major attention from analysts, and PTC is a leader in it.
PTC stock is up 74% in the last year, 120% over the last two years, almost 240% over the last five years. It’s not cheap.
The market cap is now nearly $11 billion on sales that should just top $1.2 billion this year. But if growth is what you’re looking for, then here it is.
I began writing about what became the Internet of Things in 2003, calling it “Always-On Technology.” Sensors collect data that let software bring intelligence to previously inert devices, even manufacturing systems. The factory doesn’t completely run itself, but you can build things with more accuracy, constantly update your supply chain and know when to do preventive maintenance, cutting costs dramatically.
The pieces of this — sensors, actuators, networks and clouds for connecting it all — have been around for years. Programs like Thingworx are the glue that holds it together and turns it into actionable intelligence.
PTC acquired Thingworx from its founders for $112 million in 2014. Rick Bullotta, who was then Thingworx’ CTO, is now directing the Internet of Things strategy for Microsoft (NASDAQ:MSFT) Azure, a key Thingworx partner. The software doesn’t just apply to factories, but to high-end medicine as well.
Visualizing how all this comes together requires even higher-level applications, which has gotten PTC into augmented reality with Thingworx Studio. You remember this technology from Pokemon Go, but it’s serious stuff, allowing immersive, accurate factory redesign built on another PTC technology, Vuforia.
You Get What You Pay For
High-end stuff with superior growth prospects sells at a premium in this market. PTC stock’s valuation, an Amazon.com (NASDAQ:AMZN)-like 196 times earnings, is pushing the envelope, so analysts like to say “buy on weakness”. There is even one analyst screaming “sell,” but 10 say “buy” and that number has been growing lately.
For the June quarter, which is the third of its 2018 fiscal year, PTC reported earnings of $17 million, about 14 cents per share fully diluted, on revenue of about $315 million. Subscription revenue continues to grow at double-digit rates — 15% in the most recent quarter — and bookings grew 26%. The fastest growth is coming in China, Taiwan and Korea, and the company now has an alliance with Rockwell Automation (NYSE:ROK), which invested $1 billion in PTC and put its CEO on the board, to push that further.
The Bottom Line on PTC Stock
When the analysts say you should “buy on weakness,” they’re anticipating Trump headwinds, like the trade war with China, that could cause turbulence in the stock price. They’re saying that you should buy the stock when it gets hit by these headwinds.
The main point is that PTC is delivering on its promises, and you can’t praise a tech company more highly than that. You can wait for a cheap entry point, but until the market falls hard you’re not likely to find one.
PTC is the kind of stock you can recommend highly for a young investor who can see past the next recession — someone in their 40s who wants to get beyond the safe names and into open financial waters. No one has heard of PTC, yet. But they will.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Romantic Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.