We came across a bearish thesis on Progress Software Corporation on Valueinvestorsclub.com by MCM20. In this article, we will summarize the bears’ thesis on PRGS. Progress Software Corporation’s share was trading at $40.99 as of February 2nd. PRGS’s trailing and forward P/E were 24.65 and 7.03 respectively according to Yahoo Finance.
Progress Software Corporation provides software products that develops, deploys, and manages artificial intelligence (AI) powered applications and digital experiences in the United States and internationally. PRGS presents a challenging investment profile, characterized by leverage, inconsistent performance, and an overreliance on acquisitions to drive growth. Trading at roughly 8x P/E and 8x EBITDA, the company has delivered essentially flat returns over the past five years, and near-term downside appears likely given recent deterioration in the quality of earnings.
PRGS’s largest acquisition, ShareFile from Citrix for $875 million in October 2024, pushed leverage above 3.5x and will create a difficult comp in the upcoming fiscal quarter, as the company laps this acquisition while guiding FY2026 on a more organic basis. The firm has increasingly highlighted AI in its business narrative, but organic growth remains weak and lumpy, averaging -0.3% over the last eight quarters prior to acquisition adjustments.
Since the ShareFile deal, PRGS has shifted to reporting “pro forma” ARR growth, incorporating acquired ARR to mask stagnating legacy growth. While ShareFile has delivered modest growth, recent trends show deceleration, including the first negative sequential quarter.
Adjusted and “unlevered” free cash flow metrics further obscure the company’s financial position, which includes $1.5 billion in debt, rising stock-based compensation (>30% of CFFO), and aggressive revenue recognition practices with lengthening unbilled receivables. Additional red flags include a sudden halt in disclosing allowance for doubtful accounts, spikes in cash flow addbacks for credit losses, declining deferred revenue, and frequent insider selling.
Taken together, these trends suggest that once the acquisition impact rolls off, PRGS’s underlying performance may disappoint. With organic growth and cash flow under pressure, and a looming comp from the ShareFile acquisition, the company faces clear near-term headwinds. While a strategic sale to a value-tech acquiror remains a potential upside, the immediate catalyst points toward challenging operational comps and continued investor caution.
