1 magnificent software stock down 10% to buy and keep forever

Industrial software stock PTC (PTC 1.60%) is the kind of company that investors should consider buying. The company’s recent third-quarter results for the period ended June 30 and fiscal 2025 commentary were impressive in the current environment, and the company’s long-term growth is just beginning. Here’s why PTC is a great stock for long-term holders.

Attractive end markets

PTC software solutions help customers digitally transform their operations. From initial conception using computer-aided design (CAD) to product lifecycle management (PLM) using Internet-of-Things (IoT) solutions such as digital twins or augmented reality (AR) to enhance productivity, PTC solutions are there to improve results.

PTC solutions work as part of a so-called “digital loop,” which continuously feeds data into the loop so that a company can iteratively improve its operations. A real-life example might come from a company that finds it can significantly reduce production costs (using PTC PLM software) if a product is redesigned (using CAD) in a certain way.

The benefits of such solutions will only increase as analytics improves and customers move towards digital adoption. These are exceptional and secular underlying drivers of growth, and PTC is well placed to benefit from them.

Growth from cross-selling solutions

As indicated above, the range of PTC solutions operating in a closed loop means that there is an opportunity to upsell to customers who own a different part of the PTC range.

This is particularly relevant given that current PTC CEO Neil Barua was previously CEO of ServiceMax, the service lifecycle management (SLM) business PTC acquired in early 2023. Speaking on a previous call on revenue, Barua noted, “We have focused on cross-selling ServiceMax into our strong customer base where we have established customer trust.” This is just one example of a solution that PTC can use to generate growth from its existing customer base.

Image source: Getty Images.

ARR increase

The key metric that PTC uses to measure its growth is Annual Run Rate (ARR). It represents “the annualized value of our portfolio of active subscription, cloud, SaaS and support contract programs at the end of the reporting period,” according to the company. As such, it is a better measure to judge the company on, as ARR will fall into free cash flow (FCF) on a regular basis.

Management claims that “Over the medium term, we expect free cash flow to grow faster than ARR,” and that’s exactly what’s borne out when we look at PTC’s metrics over the past few years.

Data source: PTC Presentations.

While management has yet to provide official guidance for 2025, on the recent Q3 2024 earnings call, CFO Kristian Talvitie suggested that PTC could guide to low double-digit growth for ARR and FCF from 825 to 875 million USD.

For reference, the midpoint of the FCF range is $850 million, which, if realized, would put PTC at less than 24 times FCF in 2025 based on the current valuation.

That’s a great valuation, provided ARR continues to grow at a double-digit rate and FCF at an even higher rate.

PTC can also play defense

Another attractive aspect of PTC is its ability to adapt to a slowdown in its end markets. While the company continues to generate excellent growth, it operates in end markets that continue to contain challenges. For example, management consistently referred to difficulties in closing rates on large transactions.

Image source: Getty Images.

According to Barua, “We have a disciplined process to manage our internal spend based on the level of ARR growth we see.” As such, if ARR growth slows, PTC has the flexibility to reduce expenses and thereby boost FCF generation to offset any loss of initial revenue from new offerings.

A stock to buy

Overall, PTC remains one of the most attractive stocks to play the digital revolution, and any significant weakness in the share price is a good opportunity to buy based on the current valuation and outlook.