PRGS

We rate PROGRESS SOFTWARE CORP /MA (PRGS) as a Hold with a composite score of 61.5/100 at a current price of $41.00. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (90th percentile) and quality (79th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (34th percentile) and momentum (50th percentile) tempers our overall conviction. We assign a Narrow Moat rating (43/100), High uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress; sustainability of the current growth rate. 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.

PROGRESS SOFTWARE CORP /MA 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 61.5/100 places it at rank #556 in our full 7,333-stock universe. At $1.8B in market capitalization, PROGRESS SOFTWARE CORP /MA is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 43%, though momentum at the 50th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 81% (+21.8pp vs sector) narrow to operating margins of 18% (+14.0pp vs sector) and net margins of 8.9%, yielding a gross-to-net conversion rate of 11%. 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 $41.00, PROGRESS SOFTWARE CORP /MA appears undervalued relative to its fundamentals. Our value factor score of 90/100 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 stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 22.4x (roughly in line with the sector median of 23.7x), EV/EBITDA of 20.0x (at a premium), P/B of 3.5x, P/S of 1.9x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a High uncertainty rating to PROGRESS SOFTWARE CORP /MA. Key risk factors include significant leverage (293% debt-to-equity). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (293% debt-to-equity). 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 66th percentile and quality factor at the 79th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 81% provide a buffer against cost pressures; above-average stability (66th 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 warrants caution and disciplined position management.

We rate PROGRESS SOFTWARE CORP /MA's capital allocation as Poor. Key concerns include elevated leverage (293% D/E). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — PROGRESS SOFTWARE CORP /MA 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, PROGRESS SOFTWARE CORP /MA receives a Hold rating with a composite score of 61.5/100 (rank #556 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 64/100.

Our analysis supports a neutral stance on PROGRESS SOFTWARE CORP /MA. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.