As soon as a TSX darling throughout the pandemic, Enghouse Methods (TSX:ENGH) is a Canadian know-how inventory that has was a falling knife. Down 50% from its early 2024 buying and selling ranges, the software program conglomerate, identified for its aggressive acquisitions-led progress technique, has hit a big tough patch. Nonetheless, a current new staff design, accretive acquisitions, and a beneficiant 7% dividend yield act as engaging attributes for an undervalued ENGH inventory that would improve complete shareholder returns as administration makes an attempt to engineer a restoration in 2026.
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Why is Enghouse Methods inventory damaged?
A good portion of Enghouse Methods inventory’s capital beneficial properties throughout the pandemic had been supported by its video and distant work platform, Vidyo. Because the pandemic subsided and the world returned to places of work and in-person interplay, demand for “quarantine-working” options cratered and developed. Investor curiosity in Enghouse inventory died, and the market zoomed into the corporate’s sluggish natural progress profile.
Natural progress has been a problem for Enghouse Methods as its legacy software program gross sales met the insurmountable forces of cloud-based Software program-as-a-Service (Saas) migration. The corporate had used its huge money pile to purchase progress by buying smaller tech companies. Nonetheless, with sluggish income progress and a slow-spending surroundings for enterprise software program, considerations that the corporate could possibly be a melting ice dice and not using a fixed pipeline of offers arose – and lingered.
Administration turned to aggressive dividend raises to entice its investor base, rising the payout at double-digit annual charges averaging 17.5% over the previous three years.
Encouragingly, Enghouse Methods inventory might have discovered a turning level.
Enghouse’s restoration thesis: The cash-rich contrarian play
Regardless of its share worth collapse, Enghouse is much from a failing enterprise. The enterprise stays money circulate optimistic to maintain its acquisitions-led progress technique. Its current offers seem accretive to income and earnings, whereas a brand new product technique might propel it into a brand new progress period.
Its annual income run-rate has absolutely recovered from a 2022 fall to $500 million. Its SaaS and upkeep companies recovered in 2025. In reality, Enghouse Methods’ monetary metrics going into 2026 are why it’s a powerful candidate for a decade-long maintain.
Enghouse’s fortress stability sheet is a uncommon attribute for a tech inventory. The tech inventory has zero exterior debt. On the finish of the Fiscal 12 months 2025, it held roughly $269 million in money sources, a liquid useful resource for acquisitions and share repurchases.
The enterprise continued to generate optimistic working money circulate throughout the previous 12 months to replenish the capital it spends on money acquisitions. The enterprise is replenishing the dry powder it wants to purchase out distressed software program companies at discount costs. Its acquisitions-led progress technique, dividend progress technique, and share repurchases stay effectively funded.
The corporate lately closed some accretive acquisitions. Focusing on small-cap companies providing mission crucial options to area of interest markets with excessive obstacles to entry, the corporate lately closed acquisitions of Sixbell Telco, Margento, and Aculab which can be already proving accretive to income.
The brand new AI pivot
It launched its first AI suite in 2024. Enghouse Methods’ acquisition of Aculab in fiscal 12 months 2025 added AI-driven applied sciences comparable to voice and face biometrics and excessive efficiency media processing to its interactive administration group (IMG) section.
The corporate discovered that almost all of its clients are struggling to implement AI successfully to enhance their returns on funding. It arrange a gaggle inside its analysis and improvement staff to give attention to AI skilled companies to clients. As a substitute of making an attempt to construct the following ChatGPT, counting on small language fashions (SLMs), Enghouse focuses on serving to mid-market firms implement and monetize AI inside their present contact facilities and transportation techniques. This new income alternative could also be accretive to natural progress and likewise assist with buyer retention.
Is Enghouse Methods inventory a purchase on the dip?
Enghouse Methods inventory is a contrarian buy-and-hold asset at present ranges as shares commerce at an inexpensive ahead P/E of 10.2 instances whereas promising a restoration that would generate 10% to fifteen% in annualized complete returns over the following decade.
If ENGH sustains its juicy dividend, continues repurchasing its inventory, and stabilizes its income and earnings organically whereas acquisitions add new momentum, a 7% dividend yield and a return to pre-pandemic common P/E multiples close to 30 instances might mix to supply robust complete returns to contrarian traders over the following decade.