Cognyte: Software Growth Is Accelerating Even as the Shares Keep Losing Ground

Cognyte Software (CGNT) put up its strongest numbers in years this morning: revenue growing 12%, adjusted profitability up more than a third, and a non-GAAP profit that nearly doubled. Read the headline and you would expect a stock the market is chasing. The stock, instead, has spent the past year drifting lower — down roughly 12% for the year to date and about a third below its 52-week high near $12.31.

That gap between a business getting cleaner and a market still pricing the old story is the entire setup worth looking at.

The old story, and why it is stale

Cognyte was spun out of Verint in early 2021 as a stand-alone supplier of investigative-analytics software — the tools that pull together communications records and other data so law-enforcement and intelligence analysts can build a case. It is not a glamorous sector, and for years the company behaved like it: growth was modest, profitability was thin, and the shares had no reason to excite anyone. The market's patience eventually wore out; expectations reset low.

The reason that old story is stale is that the numbers underneath it stopped cooperating.

Fiscal 2026 (the year ended January 2026), which Cognyte reported in March, showed the turn beginning: revenue rose about 14% to $400 million, adjusted EBITDA jumped roughly 66% to $48.2 million, and the company swung to GAAP net income after a loss the prior year, with non-GAAP earnings of $0.28 a share. Backlog stood at $433 million at year-end, giving the next year genuine visibility.

The just-reported quarter turns the corner more sharply. In Q2 fiscal 2027 (three months ended July 31, 2026), total revenue grew 12% to $109.2 million, but the mix is the story: pure software revenue rose about 21% to $100.8 million, over 92% of the total, and recurring revenue climbed 18.4% to $56.2 million, now just over half of revenue. For context, recurring revenue grew only about 3% in all of fiscal 2026 at 48% of the mix — so the durable, repeat-revenue part of the business is finally doing the accelerating. Adjusted EBITDA rose 35.7% to $14.9 million, and non-GAAP diluted EPS nearly doubled to $0.15.

The free-cash-flow bridge

Profits only matter here if they turn into something financially undeniable, and the cash-flow path is the proof. Cognyte ended fiscal 2026 with $40.3 million of operating cash flow on that $48.2 million of adjusted EBITDA — roughly 84% conversion — and its trailing free cash flow is up sharply year over year. The balance sheet is clean: about $102 million of cash at the end of the quarter, no debt, and management has been buying back stock, roughly $40 million spent against a $60 million authorization since late 2024.

Management did not raise its full-year forecast this morning — it reiterated it — but the target itself is the bridge. For fiscal 2027 it guides to about $448 million of revenue (up ~12%), roughly $68 million of adjusted EBITDA (up about 40%), and $0.47 of non-GAAP diluted EPS. Against an enterprise value around $500 million, that puts the stock at a low-single-digit-forward EV/EBITDA multiple, roughly 17 times forward non-GAAP earnings, and — if this year's cash conversion holds — a forward free-cash-flow yield in the high single to low double digits. None of that is a distressed price; it is a re-rating bridge if the growth and profitability hold up.

What would prove it wrong

The honest caveats are real. The customer base is dominated by governments, deals are lumpy, and the company is based in Israel — geopolitical and budget-cycle risk are unescapable. Cognyte already whiffed on one recent quarter's earnings consensus in the summer of 2025, a reminder that a single large order can distort a period. Managements prefer to hold guidance rather than raise it, so a flat full-year number after a strong quarter is tolerable; it is also the reason the stock has not yet re-rated as fast as the operating line has improved.

The thesis has a specific tripwire. It stands or falls on whether the software and recurring-revenue growth keeps compounding — the recurring line, having climbed from about 3% growth to 18% growth and past half of revenue, is the real proof that the model has shifted. The market has already reset its expectations, so there is room for surprise on the upside. This is not about excitement. It is about a business that may soon look a lot harder to dismiss once the free cash flow shows up — and a stock that, for now, is still priced like the company that used to be there.