CGNT

We rate Cognyte Software Ltd. (CGNT) as a Reduce with a composite score of 49.2/100 at a current price of $6.45. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (67th percentile) and quality (54th percentile), which together account for the majority of the composite score. Offsetting weakness in value (35th percentile) and investment (40th percentile) tempers our overall conviction. We assign a Narrow Moat rating (42/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Cognyte Software Ltd. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 49.2/100 places it at rank #2130 in our full 7,333-stock universe. At $661M in market capitalization, Cognyte Software Ltd. is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Momentum indicators (48th percentile) are neutral regarding the near-term price trend. Revenue growth data is unavailable, limiting our ability to confirm whether momentum is fundamentally supported.

The margin cascade tells an important story: gross margins of 70% (+10.9pp vs sector) narrow to operating margins of -1% (-5.0pp vs sector) and net margins of -2.1%, yielding a gross-to-net conversion rate of -3%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $6.45, Cognyte Software Ltd. is trading at a premium to fundamental value. Our value factor score of 35/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at EV/EBITDA of 13.9x (near the sector median), P/B of 2.5x, P/S of 0.3x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Medium uncertainty rating to Cognyte Software Ltd.. The stock presents a balanced risk profile: current negative profitability (net margin -2.1%). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: current negative profitability (net margin -2.1%). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 67th percentile and quality factor at the 54th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 70% provide a buffer against cost pressures; conservative leverage (0% D/E) limits balance sheet risk; above-average stability (67th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Cognyte Software Ltd.'s capital allocation as Poor. Key concerns include low returns on equity (-14.6%), negative profitability, weak asset returns (ROA -5.8%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Cognyte Software Ltd. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Cognyte Software Ltd. receives a Reduce rating with a composite score of 49.2/100 (rank #2130 of 7,333). Our quantitative framework assigns a Narrow Moat (42/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 49/100.

Our analysis does not support a constructive view on Cognyte Software Ltd. at this time. The combination of the current quantitative profile, medium uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.