Shares of supply chain software company E2open Parent Holdings (ETWO +0.00%) soared higher on Tuesday after it reported financial results for its fiscal fourth quarter of 2024. The S&P 500 was down a sharp 1.1%. In contrast, E2open stock was up a whopping 16% as of 3 p.m. ET.
E2open beat really low expectations
E2open offers cloud-based software as a service (SaaS) for managing supply chains, which would seem to be an in-demand product given the broad supply chain volatility in recent years. However, the company's total Q4 revenue of $159 million was down almost 5% year over year.
NYSE: ETWO
Key Data Points
Investors may have been optimistic nevertheless because E2open earned adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $220 million in its fiscal 2024. Considering it has an enterprise value (EV) of about $2.3 billion as of this writing, it trades at a downright cheap EV-to-EBITDA ratio of about 10.
The cheap valuation suggests that expectations from investors were low going into E2open's earnings report. But even though revenue was down, investors were pleased relative to their low expectations.
Is E2open a turnaround candidate?
Looking ahead, newly appointed CEO Andrew Appel is doing some introspection. The company's current gross retention rate is 90%, which is down from last year and has serious room for improvement. This is partly motivating the company to do a strategic review of the business. It doesn't intend to sell, but it clearly needs to do better at gaining and retaining customers if it's going to be a long-term success story.
E2open is promising, and perhaps this is why billionaire investor Paul Singer has taken an interest in the company through his hedge fund Elliot Investment Management. The fund often looks to companies that are in a slump but can turn things around.
That said, E2open doesn't expect to turbocharge its financial results quickly. The company is already in its fiscal 2025, and it expects revenue to basically be flat from fiscal 2024. Adjusted EBITDA is also expected to be flat. Therefore, investors will want to listen to commentary from Appel in coming quarters to see if the strategic review is helping management come up with a higher-upside plan.
