Agilysys: Strong Outlook, But Valuation May Limit Upside

Summary:

• Shares have risen more than 30% since its Q2 earnings release, where full year guidance was raised mostly due to the contribution from the Book4Time acquisition.
• Recurring revenue growth remains strong, fueled by subscription revenue which was up 29% year over year.
• Subscription revenue is expected to grow 38% in FY25, a growth rate which could potentially be sustained for the next two years given the deals in the pipeline.
• The current valuation at over 20 times recurring revenue is unattractive, especially given the competitive risks, leading me to remain cautious with a Hold rating.

Investment thesis

Shares of Agilysys (NASDAQ:AGYS) are up sharply this year, and have more than doubled over the last two years. Leveraging its strong product offering, the underlying business continues to post impressive growth in recurring revenue

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