ACI Worldwide Inc (NASDAQ:ACIW) Emerges as a Strong Value Investment Opportunity

ACI Worldwide Inc (NASDAQ:ACIW) has been recognized as a possible choice for value investors after a screening process that focuses on stocks with solid fundamentals but lower-than-expected prices. The "Decent Value" screen selects companies with a ChartMill Valuation Rating above 7, meaning they are priced favorably compared to their true value, while also showing good profitability, financial stability, and growth potential. This method fits with value investing strategies, which aim to take advantage of market discrepancies by buying stocks priced below their actual worth, expecting their prices to adjust over time.

Valuation: A Core Aspect of Value Investing

ACIW’s valuation data indicates the stock is priced lower than both its industry counterparts and the wider market. The company’s fundamental analysis report points out several important details:

• Price/Earnings (P/E) Ratio: At 16.35, ACIW’s P/E ratio is much lower than the industry average of 63.87 and the S&P 500’s 27.03, suggesting it is priced below its earnings potential.
• Price/Forward Earnings: Its forward P/E of 16.36 is also below the sector average (35.28) and the S&P 500 (36.28), confirming its low valuation.
• Enterprise Value/EBITDA: ACIW’s EV/EBITDA ratio ranks it in the top 8.5% of its industry for affordability, adding to the argument for its undervaluation.

For value investors, these figures are important because they imply the stock is trading below its true worth, offering a safety margin—a key principle of value investing.

Profitability: Solid Fundamentals Support Value

ACIW’s profitability metrics are strong, with a ChartMill Profitability Rating of 8 out of 10. Key points include:

• Return on Invested Capital (ROIC): At 12.54%, ACIW beats nearly 90% of its software industry peers, showing effective use of capital.
• Operating Margin: At 22%, the company’s operating margin is higher than 90% of competitors, indicating good operational performance.
• Profit Margin: At 16.12%, ACIW is in the top 17% of its sector, proving its ability to turn revenue into profits.

Strong profitability is crucial for value stocks because it suggests the company can maintain and increase earnings, lowering the chance of significant losses—another important factor in value investing.

Financial Health: A Mixed but Manageable Outlook

ACIW’s financial health is rated 5 out of 10, showing a balanced but cautious risk profile:

• Solvency: The company’s Altman-Z score (3.30) points to low bankruptcy risk, and its debt-to-free-cash-flow ratio (3.05) is better than 64% of peers, meaning it can handle its debt well.
• Leverage: A debt-to-equity ratio of 0.55 is acceptable but higher than 67% of industry competitors, requiring some attention.

While not perfect, ACIW’s financial health is stable enough to back its valuation argument. Value investors may accept moderate debt if profitability and cash flow remain solid, as seen here.

Growth: A Contributing Factor

With a Growth Rating of 6, ACIW displays steady but not rapid expansion:

• Past Growth: EPS jumped 89.55% over the past year, while revenue increased 13.11%, surpassing many peers.
• Future Expectations: Analysts forecast 11.22% annual EPS growth and 5.9% revenue growth, suggesting consistent, though not outstanding, progress.

Growth is less critical in value investing, but reliable earnings growth helps confirm that the company’s low valuation is temporary, not a sign of deeper issues.

Conclusion: A Strong Value Opportunity

ACI Worldwide Inc offers a strong case for value investors, blending an appealing valuation with solid profitability, reasonable financial health, and steady growth. While all investments carry risk, the stock’s low pricing relative to its fundamentals hints at possible gains as the market adjusts.

For investors looking to find similar opportunities, more undervalued stocks can be discovered using the Decent Value Stocks screen.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making any investment decisions.