Vertex, Inc. (VERX): Among the Worst Performing Software Stocks to Buy According to Analysts

Vertex, Inc. (VERX) has been one of the worst-performing software stocks in recent months, with its shares down 20.09% year-to-date (YTD) and 67.83% in the last 12 months. Despite its underperformance, analysts remain bullish on the company, with an average rating of "Buy" and a 12-month stock price forecast of $54.25, indicating a potential 68.01% upside from the latest price. This article explores the factors contributing to Vertex's underperformance and the strategic moves the company could make to improve its stock price and overall valuation.



Vertex's underperformance compared to other software stocks can be attributed to several factors:

1. Higher Valuation: vertex has a higher price-to-earnings (P/E) ratio compared to other software stocks, which may indicate that investors expect lower growth or higher risk from the company. As of February 28, 2025, Vertex's P/E ratio was 224.37, while the average P/E ratio for other software stocks was around 30-40.
2. Lower Revenue Growth: Although Vertex's revenue growth has been robust, it has not kept pace with some of its peers. In 2024, Vertex's revenue grew by 16.49%, while other software stocks like Nvidia and Intuit experienced higher growth rates.
3. Negative Earnings: Vertex reported losses in 2024, which is unusual for a software company. The company's net loss was -$52.73 million, compared to net income for other software stocks. This negative earnings trend may have contributed to investor concerns about the company's financial health.
4. Limited Upside: Some analysts have expressed concerns about the limited upside potential for Vertex at its current valuation. For example, Raymond James downgraded Vertex to neutral due to limited upside at its current valuation of 10x FY25 revenue, despite robust growth outlook and strong performance.

To improve its performance, Vertex could consider the following strategic moves:

1. Accelerate Cloud Revenue Growth: Vertex's cloud business has been a significant growth driver, with cloud revenues surging 27.0% in Q4 and 28.6% for the full year to $276.0 million. To further boost its stock price, Vertex could:
* Invest more in cloud infrastructure and services to attract more customers and increase market share.
* Leverage its cloud capabilities to offer more integrated and innovative solutions, such as AI-powered tax determination and e-invoicing services.
2. Expand E-invoicing Capabilities: With the increasing adoption of e-invoicing globally, Vertex can:
* Strengthen its e-invoicing capabilities by investing in and integrating technologies like ecosio, which can help the company better support customers in the rapidly changing regulatory compliance landscape.
* Expand its e-invoicing services to new markets, capitalizing on the growing demand for these services.
3. Invest in AI and Emerging Technologies: To maintain a competitive edge, Vertex could:
* Allocate more resources to AI initiatives, such as Smart Categorization, to automate complex tax determination processes and create competitive differentiation.
* Explore other emerging technologies, such as blockchain or machine learning, to enhance its tax compliance solutions and attract more customers.
4. Improve Net Revenue Retention (NRR): Although Vertex's NRR remains at healthy levels, a slight decline could indicate increasing competition or market penetration among current customers. To address this:
* Focus on improving customer satisfaction and retention through better product offerings, enhanced customer support, and innovative solutions.
* Consider strategic partnerships or acquisitions to expand its customer base and increase market share.
5. Enhance Financial Communication: To better communicate its growth prospects and financial performance to investors, Vertex could:
* Provide more detailed and transparent financial guidance, highlighting key growth drivers and strategic initiatives.
* Host regular earnings calls and webinars to engage with investors and address their concerns or questions.
6. Dividend Payouts: Although Vertex has not paid dividends in the past, initiating dividend payouts could:
* Attract income-oriented investors, increasing the company's shareholder base.
* Signal the company's confidence in its financial performance and growth prospects.



In conclusion, Vertex's underperformance compared to other software stocks can be attributed to factors such as higher valuation, lower revenue growth, negative earnings, and limited upside potential. To improve its stock price and overall valuation, Vertex could consider strategic moves such as accelerating cloud revenue growth, expanding e-invoicing capabilities, investing in AI and emerging technologies, improving net revenue retention, enhancing financial communication, and initiating dividend payouts. Despite its recent underperformance, analysts remain bullish on the company, with an average rating of "Buy" and a 12-month stock price forecast of $54.25, indicating a potential 68.01% upside from the latest price.