Subscription Momentum And New Customer Wins Will Support Long-Term Ecosystem Expansion

Key Takeaways

• Transition to a SaaS model and deep product integration are driving more predictable, higher-margin recurring revenue and improving customer retention.
  
• Expanded sales capacity and advanced AI enhancements are fueling robust growth across multiple hospitality sectors and international markets.
  
• Heavy reliance on the hospitality sector, intensifying competition, rising costs, and regulatory pressures threaten Agilysys' growth prospects and long-term margins.

Catalysts

Operates as a developer and marketer of software-enabled solutions and services to the hospitality industry in North America, Europe, the Asia-Pacific, and India.

• Rapid adoption of cloud-native, subscription-based hospitality software and the company's shift toward a SaaS revenue model is creating significantly higher and more predictable recurring revenue streams, positioning Agilysys for ongoing improvements in earnings and margin expansion as legacy perpetual license sales decline.
  
• Accelerated sales momentum across multiple verticals (hotels, casino gaming, food service management, international) and a record high backlog of implementations, combined with recently expanded sales capacity, indicate a strong pipeline that is expected to drive robust top-line revenue growth and sustained increases in subscription ARR.
  
• Agilysys' deep investment in product modernization has resulted in a highly integrated hospitality technology ecosystem, enabling cross-selling of multiple products per customer and underpinning higher average revenue per user (ARPU) and customer retention, which should support long-term revenue growth and gross margin improvements.
  
• The company's focused and increasingly differentiated AI-driven enhancements (such as personalized upselling, dynamic pricing, and AI-powered guest engagement tools) are expected to meaningfully elevate product value, drive upsell opportunities, and improve operational efficiency-positively impacting both revenue growth and net margins.
  
• Growing international momentum and the ongoing wave of digitization in hospitality globally, especially in underpenetrated emerging markets, offer significant expansion opportunities which could increase Agilysys' total addressable market and drive outsized revenue growth in future periods.

Agilysys Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Agilysys's revenue will grow by 13.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 14.2% in 3 years time.
• Analysts expect earnings to reach $60.4 million (and earnings per share of $1.7) by about September 2028, up from $14.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 77.1x on those 2028 earnings, down from 215.2x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to grow by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.42%, as per the Simply Wall St company report.

Agilysys Future Earnings Per Share Growth

Risks

• Heavy exposure to the hospitality sector, particularly hotels, resorts, casinos, and food service management, leaves Agilysys vulnerable to cyclical downturns in travel and leisure, which could materially compress recurring revenue and future earnings during global economic or tourism slowdowns.
  
• Despite recent international growth momentum, Agilysys' results remain concentrated in North America, potentially capping long-term revenue growth and leaving the company more exposed to domestic market saturation or slower regional technology adoption outside established territories.
  
• Intensifying competition from larger, well-capitalized cloud providers and ongoing industry moves toward open-source and interoperable hospitality solutions may erode Agilysys' pricing power and market share, ultimately putting pressure on revenue growth and net margins.
  
• Sustained investment in sales capacity, innovation (particularly AI-driven features), and expanded marketing to maintain product differentiation and customer acquisition is driving higher operating expenses, which could constrain margin improvement and dampen earnings if top-line growth moderates.
  
• Increasing data privacy regulation and global compliance requirements could escalate operational complexity and costs for Agilysys, limiting flexibility in product innovation and potentially compressing net margins over the long run.

Valuation

• The analysts have a consensus price target of $130.4 for Agilysys based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $152.0, and the most bearish reporting a price target of just $120.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $425.1 million, earnings will come to $60.4 million, and it would be trading on a PE ratio of 77.1x, assuming you use a discount rate of 8.4%.
• Given the current share price of $108.14, the analyst price target of $130.4 is 17.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.