Stock Story -
What Happened?
Shares of insurance industry-focused software maker Guidewire (NYSE:GWRE) jumped 9.7% in the afternoon session after Goldman Sachs (NYSE:GS) analyst Adam Hotchkiss initiated coverage of the stock with a Buy rating and a $210 price target. Hotchkiss thinks Guidewire's leadership in the key end markets and the momentum from customers migrating to the cloud should continue to support growth.Separately, S&P Dow Jones Indices announced the company would be added to the S&P MidCap 400 before trading opens on Monday, January 27, 2025.
Being included in the index means that Guidewire will likely be held by many mutual funds and ETFs, which could potentially drive up demand for the stock.
We note that while buying of the stock could increase, this development does not change the fundamentals of the company. Revenue growth, expense efficiency, and capital intensity of the business, for instance, are not impacted by index inclusion or exclusion, so this is more of a technical tailwind for the stock.
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What The Market Is Telling Us
Guidewire’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.The biggest move we wrote about over the last year was 8 months ago when the stock gained 16.3% on the news that the company announced a "beat and raise" quarter. Guidewire beat analysts' revenue, billings, and ARR (annual recurring revenue) expectations. Its full-year ARR guidance also beat Wall Street's estimates. One negative was that its gross margin decreased, but it didn't matter much in the face of a "beat-and-raise" quarter. Zooming out, we think this was a solid quarter, showing the company is staying on track.
Guidewire is up 19.4% since the beginning of the year, and at $202.41 per share, it is trading close to its 52-week high of $207.12 from December 2024. Investors who bought $1,000 worth of Guidewire’s shares 5 years ago would now be looking at an investment worth $1,807.