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About Tyler Technologies
Based in the great suburb and accompanying state of Plano, Texas, Tyler Technologies sounds like a boring a company and, well, it is, at least to pretty much anyone except for me, a boring company, engaging in a pretty boring line of work, but when it comes to business, this isn’t usually all that much of a con, but really a definite pro in my eyes.
It is sort of like the previous company that I analyzed in that it is also a software as a service (SaaS) company, however, instead of focusing its efforts on the real estate market, Tyler Technologies instead concentrates its capital, energy and other efforts and resources on servicing not companies operating within the private or business sectors, but rather it is in the business of helping agencies within the scope of the public sector.
In other words, Tyler Technologies helps the United States government.
More specifically, Tyler has put together and continues to capitalize upon software packages within the realms of property appraisal and with that, property taxes along with specialized solutions for courts of law within the United States, also lending a helping hand to those that work in open-space facilities management, safeguards and other measures to assist those that work in law enforcement, correctional facilities management, workers within local infrastructure projects, general records management and school systems in all of their potential day-to-day organizational needs, parks and recreational facility management software, also offering cybersecurity packages across the board, if the others weren’t quite enough.
One example of this company’s many clients is the state of Georgia.
It is said that Tyler Technologies and the State have a solid business relationship in that Tyler’s software makes it much easier for law enforcement agencies in the region to share data amongst themselves, helping the State keep better tabs on the actions, activities and whereabouts of the bad actors out there but also help better streamline criminals to the necessary rehabilitation and related statewide resources that might just help them get their lives back on track.
Whether that really happens or not, I am not sure, but all I know is that Fulton County, Georgia pays Tyler Technologies a good deal of (more than likely taxpayer) funds each month for access to its software.
Before I dive into the company’s financials, I will just say that I like that this is a company that works predominantly for and with the public sector, as government contracts tend to be long-term by nature and so long as citizens are paying their taxes, their respective agencies are going to keep ponying up the dough and, who are we kidding, it is at least my experience that those that work for the government, regardless of station or post, tend to not like change and if agencies started migrating off of Tyler Technologies’ platform, there would be a rather sizable probability that an uproar would occur and the mess would become even messier.
That’s a little bit on Tyler Technologies and here is the real meat and potatoes and what really matters, the facts and figures under this company’s wings that will ultimately determine my thoughts on considering this company’s stock (NYSE: TYL) as a long-term investment and potential staple in one’s portfolio.
Tyler’s stock financials
Trading at a share price of $578.59 with an associated price-to-earnings (P/E) ratio of 119.87, also exuding a market capitalization of $24.69 billion, all while not distributing an annual dividend to its shareholders, it appears as though Tyler Technologies’ stock isn’t exactly trading in bargain bin territory as my bitten up fingers (bad habit, I know) pitter patter on my keyboard.
I mean, in relation to the commonly held fair value P/E benchmark of 20, where any higher value indicates that a security (stock) is trading at a premium, or is overvalued when put up against the cumulative sum of its parts, Tyler Technologies’ shares just seem wildly overpriced.
As also seen in my last article, though, valuation is a very relative metric and where there is growth there is indeed sometimes a way to reasonably justify paying for said growth, however, I will just say that Tyler Technologies better be growing at a very substantial rate given its current valuation levels.
When it comes to the company not paying out a dividend, I am simply on board with such a decision, as whether you are a seasoned SaaS company or a brand new one, it pays to conserve your cash and be ready to aggressively invest and reinvest.
Regarding the company’s balance sheet, Tyler Technologies’ executive team is tasked with putting a decent current and future business together by using the nearly $4.7 billion in total assets and $1.7 billion in terms of total liabilities that it maintains on its books.
I like Tyler Technologies’ odds.
This company has plenty more total assets than net liabilities and also has the financial wherewithal to grow through acquiring smaller competitors, but what I think is actually the more relevant case here is having a good amount of dry powder that it can use to not over diversify outside of its current software solutions, but rather dig deeper into each of its current categories and find tangible and meaningful ways to add more value to its customers, because that ultimately means that it can tack on more fees which intrinsically means revenue growth as well as further growth in its already mighty market share.
Moving right along, when it comes to the company’s income statement, Tyler’s annualized revenue figures stemming off of 2019 have grown at a slow but nevertheless steady rate, touching its lowest relative point of just a little over $1 billion in 2019 and rising each and every year to its latest reported figure of just under $2 billion, as reported in 2023, which is fine revenue growth and frankly the rate of growth that I sort of expected out of a company such as this one, but the sticking point here is the fact that it is not nearly enough growth to warrant overpaying as much as one would have to if they were just hellbent on being a shareholder as of today.
Regarding the company’s cash flow statement, Tyler Technologies’ total cash from operations have been slowly growing for the most part (also measured during and between 2019 and 2023), which is good but still not great with respect to its currently all too demanding valuation, basing out at $255 million (2019) and attaining a high of $381 million, as reported in 2022, notching just a hair under at $380 million in its latest reported and displayed figure as of 2023.
I want to be fair and say that it is great to find that there has been some growth in this company’s ability to generate some cold hard cash out of its everyday business operations but again, it just hasn’t been doing so at a rate that is compelling enough with respect to its present valuation, in my humble and objective opinion.
Tyler’s stock fundamentals
When it comes to the condition of this company’s net profit margin, Tyler’s, according to the figure displayed on Charles Schwab’s platform, stands at 10.24%, which, in comparison with some of its most similar business competitors, such as Synopsys (NASDAQ: SNPS) and Workday (NASDAQ: WDAY), lags behind a good amount, with Synopsys’ net profit margin pegged at a more attractive 22.91% with Workday’s also being reported as a healthy 19.67%, which generally leads me to believe that since these competitors are primarily rooted in serving the private sector (i.e., other business and companies), the margins in the public sector aren’t all that plentiful.
Although on its own it is far from being the worst net profit margin, or at least the tail end of what I would’ve initially expected, on the basis of comparison, Tyler Technologies’ net profit margin is incredibly “mid,” as the kids say nowadays.
Should you buy Tyler Technologies stock?
Let’s break this down once and for all.
Tyler Technologies can be reasonably deemed as an essential company for government agencies across the United States of America, and while there is, I think, a lot of warranted confidence to be had as it relates to this company being fairly recession proof, I can’t justify paying this much of a surplus for a consistent and rather boring company, specifically when its price-to-earnings ratio stands at such a staggeringly high amount relative to its actual worth.
Nonetheless, in putting more pieces of the puzzle together, Tyler Technologies’ net profit margin is not bad nor is it great, its balance sheet is in mint condition, its recent annual revenue figures have been net consistent and when also seeing that the company’s cash flows have been growing at a snail’s pace, I think it would be the most appropriate procedure to lend Tyler Technologies a “sell” rating until its valuation makes it way back down to our planet.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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