In his latest report, Wedbush analyst Dan Ives named his top AI picks for 2025. Among them was Pegasystems. NASDAQ: PEGA. The software company has already had a great 2024, with the stock posting a total return of 91%. Despite this, Wedbush, like other Wall Street analysts, remain bullish on technology stocks. Royal Bank of Canada Analysts New York Stock Exchange: RY and Citigroup New York Stock Exchange: C updated their price targets last month. The average of these two indicators suggests a 24% upside potential for Pegasystems shares as of the January 8 close.
Below, I’ll detail what Pegasystems does and provide an overview of its latest financial results. I’ll also detail what Pega needs to do to make 2025 a successful year.
Pega: Improving Customer Engagement, Service and Business Processes with AI
Pegasystems today
As of 01/08/2025 16:00 Eastern
- 52 week range
- $45.36
▼
$97.94
- Dividend yield
- 0.12%
- P/E ratio
- 70.14
- Target price
- $91.50
Pega identifies three business problems it is working to solve. Firstly, it improves interaction with customers. Pega Customer Decision Hub’s artificial intelligence-powered customer relationship management platform helps you personalize your customer experience. It predicts customer behavior and suggests actions that will help employees close sales. Ultimately, it’s about improving the process of attracting and retaining customers.
The company is also working to optimize customer service. The Pega Customer Service application improves the efficiency of request processing. For this purpose, artificial intelligence-based virtual assistants and industry-specific processes are used.
The last one is increasing efficiency through intelligent automation. Pega Platform software allows companies to analyze and automate their legacy workflows. The Pega platform integrates with hundreds of other software applications. Employees can then use it to set up automation in other types of software they use. Pega will essentially simulate the human actions that someone would have to perform after installation. Customers can also create full-fledged applications using Pega Express.
A key aspect of Pega’s value proposition is that it is “low code”. This means employees can automate processes and create applications without programming knowledge. This could potentially significantly reduce the amount companies pay software developers, whose average salary is $132,000. This also helps reduce the risk of miscommunication between departments. Someone working in HR can build the app themselves exactly the way they want. They don’t have to worry about the software developer not being able to properly translate their vision into reality.
Pega: strong growth coupled with improved profitability
Pegasystems MarketRank™ Stock Analysis
- Overall MarketRank™
- 96th percentile
- Analyst rating
- Moderate purchase
- Pros/cons
- 4.8% Minus
- Short interest level
- Healthy
- Dividend Power
- Weak
- Environmental assessment
- -0.38
- Mood News
- 0.57
- Insider trading
- Sale of shares
- Project Profit Growth
- 15.53%
See full analysis
Over the last twelve months, Pega’s revenue grew by a respectable but not mind-blowing 9%. Overall, the company has seen significant fluctuations in revenue growth each quarter. However, since September 2023, the company has made significant progress in its profitability. The company’s gross margin grew more than 200 basis points over the past 12 months.
In September 2023, operating margin and trailing 12-month net profit margin were around 0%. Now they are almost 12% and more than 7%, respectively. Its 2024 free cash flow has nearly doubled year-to-date compared to 2023. In the third quarter of 2024, its backlog was also 17% higher than a year earlier. However, since the beginning of 2024, the growth of the backlog has stalled somewhat.
Pega: further adoption of artificial intelligence and innovation is necessary to win in 2025
Pega’s ability to succeed in 2025 depends on its bet that enterprises will aggressively push the adoption of AI. Considering that most still believe that we are in the early stages of AI development, it is likely that we are. Ives’ positive view of these AI names has a lot to do with his belief that AI is still “in the second stage” of its journey.
Another key component to Pega’s success will be its ability to continue to innovate and create products that customers can get more value from. The company’s GenAI Blueprint tool is an example of how it has done this in 2024. This tool allows companies to analyze their legacy processes and rethink how they are set up.
Companies identify the problem they want to solve and input legacy data. Using industry best practices, Pega uses AI to create starting points for building a new application. It then walks the user through the process of creating the application and what specific things it will automate. The project’s new feature helped Gartner name Pega a leader in enterprise low-code application platforms (LCAP).
Pega has many opportunities to do this, including improving profitability, technology leadership and being in the early stages of artificial intelligence. It also trades at an average price-to-earnings ratio of 32 times its peers. Of course, it wouldn’t be crazy if Pegasystems had another strong year in 2025.
Before you consider Pegasystems, you should hear this.
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