News

Shares of supply chain software company E2open Parent Holdings (NYSE: ETWO) 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.

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.

Should you invest $1,000 in E2open Parent Holdings right now?

Before you buy stock in E2open Parent Holdings, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and E2open Parent Holdings wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

*Stock Advisor returns as of April 30, 2024

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.