Guidewire Software’s GWRE shares have been performing well on the trading front with a gain of 87.5% year to date (“YTD”) compared with the S&P 500 composite and the sub-industry’s growth of 26.5% and 24%, respectively.

YTD Price Performance

Image Source: Zacks Investment Research

Guidewire is a provider of software solutions for P&C insurers. Its cloud platform boasts a trusted infrastructure with modular and interconnected cloud services to aid insurers in upgrading their core operations. The platform also has scalability as well as the ability to embed analytics and core workflows. The company updates its cloud platform thrice a year to keep the system agile and nimble amid a constantly evolving P&C industry.

Closing the last session at $204.46, the stock is trading near its 52-week high of $207.10. Investors are now most likely contemplating whether to stay invested or cash out. Let us dive into GWRE’s prospects and determine the best course of action for your portfolio.

Momentum in Guidewire Cloud Key Growth Driver

Momentum in Guidewire Cloud is a tailwind. In the last reported quarter, Guidewire won 16 deal wins, taking the total cloud wins to 42 for the year. Out of these deals, 13 were for InsuranceSuite Cloud, bringing the total InsuranceSuite Cloud deals for the fiscal year to 37. The company's focus on enhancing Guidewire Cloud platform with new capabilities, including digital frameworks, automation, tooling and other cloud services, is expected to boost sales of subscription-based solutions in the long haul.

In the fiscal fourth quarter, the subscription and support segment’s revenues (52.1% of total revenues) soared 29.4% from the year-ago quarter to $151.8 million.

Owing to continued traction, the company expects fiscal 2025 total revenues to be between $1.135 billion and $1.149 billion. Subscription revenues are forecasted to be $642 million, indicating 34% year-over-year growth.

As of July 31, annual recurring revenues (ARR) were $872 million, up 14.3% year over year. GWRE added that the strong performance of the metric in fiscal 2024 positions the company to achieve its $1 billion ARR target by fiscal 2025. ARR is expected to be in the range of $995-$1,005 million for the ongoing fiscal year.

GWRE’s Improving Margin Performance

Management also remains focused on driving cloud operations efficiently to boost cloud margins. In the last reported quarter, non-GAAP gross margin expanded to 67% from 64% on a year-over-year basis. The subscription and support segment’s gross margin increased 66% from 57.8% on a year-over-year basis, attributed to increased cloud-infrastructure efficiency. Services’ non-GAAP gross margin was 14.2% compared with 10.5% in the year-ago quarter.

For the first quarter of fiscal 2025, GWRE expects non-GAAP operating income in the range of $18-$24 million. For the fiscal year, non-GAAP operating income is estimated between $157 million and $171 million.

However, Service revenues are getting affected as the company invests more in its ecosystem of implementation partners. Rising research and development costs and integration risks are major concerns. In the last reported quarter, total operating expenses increased 11.8% year over year to $176.1 million.

Estimates For GWRE

The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues is pegged at $1.14 billion and $1.3 billion, respectively, indicating growth of 16.8% and 13.7% from the year-ago levels.

The estimated figures for fiscal 2025 and 2026 EPS, $1.98 and $2.48, indicate an increase of 46.8% and 25.5%, respectively, from the prior-year actuals.

Here Is Why GWRE Shares Are a Buy

Strong financial performance, strategic initiatives in technology and robust market demand make Guidewire an attractive investment opportunity. The stock delivered a trailing four-quarter average earnings surprise of 84.6%.

GWRE currently carries a Zacks Rank #2 (Buy).  Apart from a favorable rank, GWRE has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.

Riding on a robust earnings surprise history and favorable Zacks Rank, it appears primed for further stock price appreciation. Consequently, investors are likely to profit if they bet on this high-flying stock.

Other Stocks to Consider

Some other top-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, Workday Inc. WDAY and InterDigital, Inc. IDCC. IDCC & PLXS presently sport a Zacks Rank #1, whereas WDAY carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 60% in the past year.

The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, with the average surprise being 163.7%. Its shares have surged 95.9% in the past year.

The Zacks Consensus Estimate for WDAY’s fiscal 2025 EPS is pegged at $6.97, unchanged in the past 30 days. WDAY’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, with the average surprise being 9.1%. The stock has risen 2.9% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Plexus Corp. (PLXS) : Free Stock Analysis Report

InterDigital, Inc. (IDCC) : Free Stock Analysis Report

Guidewire Software, Inc. (GWRE) : Free Stock Analysis Report

Workday, Inc. (WDAY) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research