It’s down 33%, and I’m adding this name to my list of growth stocks to buy in February
Roper Technologies (NASDAQ:ROP) is one of the growth stocks Iâve had my eye on for a long time, but never seen it at an attractive price. But thatâs just changed as we head into February.
The company’s issued earnings per share guidance of at least $21.30 for 2026, but the stock’s crashed to $369. At a price-to-earnings (P/E) ratio of 17, I think itâs too cheap for me to ignore.
Software as a service
Roper’s a collection of smaller businesses that provide the software that organisations in specific industries use to run their operations. These include government contractors, law, and laboratories.
The firm typically looks for acquisition targets that have strong positions in expanding niche industries. This means they have growth prospects while also being difficult to disrupt. But we can’t ignore that acquisitions always carry risk of not working out.
That aside, the obvious question is whoâs selling businesses that have all these attractive properties? The answer is private equity firms that are usually looking to move on to provide returns for investors.
Roperâs strategy has worked very well over the last 10 years, with revenues more than doubling and free cash flows up almost 200%. But artificial intelligence (AI) means thereâs a new threat.
AI disruption
The rise of AI has caused a huge shift in stock market thinking. Investors have gone from being enchanted by software companies to selling them off almost indiscriminately.
In some cases, I think this makes sense. AI that can write software code makes it much easier to build websites or create programmes that can help people learn languages, so the threat’s very real.
In other cases though, I think the market’s overreacting. Companies with products that canât just be replaced by an AI-generated alternative should still be in a strong position to grow.
Itâs up to investors to figure out which ones these are. But while the stock market seems to think Roper Technologies is in the first category, my view is that itâs actually in the second.
Roperâs resistance
Unlike some other software companies, competing with Roperâs subsidiaries isnât as straightforward as writing code. The industries it operates in often have high regulatory barriers to entry.
Deltek is one of the firmâs businesses that provides software for government contractors. Creating a competing product would require years of auditing to become compliant.
That means customers canât easily switch to a new AI competitor. And the risks of doing so are extremely high â one hallucination could cost them their entire business.
Deltek’s one example, but the situation’s similar with a number of Roperâs other subsidiaries. Thatâs why I think the stock market’s making a mistake in selling the stock.
A buying opportunity
Roperâs recent guidance fell short of what investors were expecting. But it’s now down 33% in its last 12 months and it’s unusual to find the stock at a P/E multiple of 17.
On top of this, I can see growth potential. Software businesses trading at discounted multiples should be a good thing for a company that looks to acquire them.
As a result, the threat of AI disruption could give Roper the chance to expand its existing portfolio at bargain prices. And Iâm looking to add the stock to mine.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Roper Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
