Why Shares of Simulations Plus Soared This Week
Key Points
Shares of Simulations Plus had gained more than 20% as of midday Thursday.
The company reported mixed results, but its guidance calls for revenue and earnings growth in fiscal 2026 despite a difficult environment.
Simulations Plus will lay out its AI-centric product vision in January.
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While modeling and simulation software provider Simulations Plus (NASDAQ: SLP) reported mixed results for the fourth quarter of fiscal 2025, the company's outlook for fiscal 2026 was enough to propel the stock higher. Simulations Plus stock had gained 21.6% for the week by 11:45 AM E.T. Thursday, according to data provided by S&P Global Market Intelligence.
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Navigating a tough environment
Simulations Plus reported a 6% revenue decline in the fourth quarter to $17.5 million, with sales sinking across software and services. That revenue was slightly ahead of the analysts' expectations, although adjusted EPS of $0.10 missed the mark. The company still managed to grow revenue for the full fiscal year by 13%.
"The demand environment remains cautious, but we believe adoption of cloud deployment, interoperability, and AI-driven workflows is accelerating across our customer base," said Simulations Plus CEO Shawn O'Connor. The company will hold a virtual investor day event on Jan. 21, where it will lay out its updated product vision and artificial intelligence solutions.
For fiscal 2026, Simulations Plus expects to report revenue growth between 0% and 4% to a range of $79 million to $82 million. Adjusted EPS is expected to be between $1.03 and $1.10, compared to $1.03 in fiscal 2025.
While the outlook calls for a slowdown in growth, expectations may not have been particularly high, given the stock's poor performance this year.
Is Simulations Plus a buy?
Shares of Simulations Plus have dropped by 44% from their 52-week high even after this week's rally, and the stock is down about 77% from its all-time high. Given the company's guidance for fiscal 2026, the stock trades for less than 20 times forward earnings.
While the valuation looks reasonable, the company's growth is slowing. A bet on AI-powered solutions could help accelerate growth, but it will take time for AI initiatives to bear fruit. While investors became more optimistic about Simulations Plus this week, the company still needs to show that its new AI-centric product vision can boost revenue and profit in the long run.
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Timothy Green 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.
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