Since November 2020, the S&P 500 has delivered a total return of 85.8%. But one standout stock has more than doubled the market - over the past five years, Agilysys has surged 204% to $123.52 per share. Its momentum hasn’t stopped as it’s also gained 21.9% in the last six months thanks to its solid quarterly results, beating the S&P by 10.5%.

Is there a buying opportunity in Agilysys, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Is Agilysys Not Exciting?

We’re glad investors have benefited from the price increase, but we're swiping left on Agilysys for now. Here are three reasons there are better opportunities than AGYS and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Agilysys grew its sales at a 15.5% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

2. Low Gross Margin Reveals Weak Structural Profitability

For software companies like Agilysys, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Agilysys’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 61.8% gross margin over the last year. Said differently, Agilysys had to pay a chunky $38.24 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Agilysys has seen gross margins improve by 1.5 percentage points over the last 2 year, which is solid in the software space.

3. Operating Margin Rising, Profits Up

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Looking at the trend in its profitability, Agilysys’s operating margin rose by 2.2 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 10.5%.

Final Judgment

Agilysys’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 10.3× forward price-to-sales (or $123.52 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Agilysys

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.

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