OneSpan (OSPN): Assessing Undervaluation Amid Mixed Fundamentals and Upcoming Earnings

OneSpan (NASDAQ:OSPN) has long been a niche player in the cybersecurity sector, specializing in digital identity and data protection solutions. However, its recent stock performance has raised questions about its valuation and growth potential. From July 2023 to July 2025, the stock has exhibited a mixed trajectory, underperforming the S&P 500 and Nasdaq Composite in key periods but outpacing its sector in shorter timeframes. This article evaluates whether the stock's current undervaluation—highlighted by a Forward P/E of 11.36 versus an industry average of 28.14—presents a compelling opportunity for investors willing to navigate its risks.

Recent Performance: A Tale of Two Trends

OneSpan's stock has shown stark contrasts in performance. In the latest trading session, it closed at $17.69, down 1.99%, while the S&P 500 rose 0.61% and the Nasdaq gained 0.95%. A week earlier, the stock plummeted 10.14% to $15.77, lagging behind a modest decline in the broader market. Yet, over the past month, the stock rallied 8.87%, outperforming the 5.6% gain of the Computer and Technology sector. This duality reflects a company grappling with near-term volatility but retaining underlying momentum in its recurring revenue model.

Fundamentals: Strong Profitability, Weak Revenue Growth

Despite the stock's volatility, OneSpan's financials tell a story of disciplined execution. The company's Return on Equity (ROE) of 25%—more than double the industry average of 13%—underscores its ability to generate returns from shareholder capital. Subscription revenue for Q1 2025 grew 9% year-over-year to $43.6 million, driving Annual Recurring Revenue (ARR) to $168.4 million. Operating income and Adjusted EBITDA also rose 22% and 14%, respectively, indicating strong cost control and margin expansion.

However, total revenue declined 2% to $63.4 million in the same period, a concern for investors. The company's reliance on a narrow product suite and its exposure to macroeconomic headwinds—such as reduced enterprise IT spending—pose challenges. Analysts project flat revenue for 2025, with full-year earnings expected to grow 9.85% to $1.45 per share.

Valuation: A Discounted Opportunity?

OneSpan's valuation metrics suggest it is significantly undervalued relative to peers. Its Forward P/E of 11.36 is less than half the Software - Infrastructure sector average, while its Price/Sales ratio of 2.47 and Price/Book ratio of 2.56 further reinforce this thesis. The company's balance sheet is also robust, with $105.2 million in cash, a current ratio of 2.2x, and consistent dividend payments.

Yet, this discount may reflect legitimate concerns. The stock's recent earnings miss—due to one-time costs—highlights operational risks. Additionally, OneSpan faces stiff competition from incumbents like Thales and Entrust, which dominate the encryption market.

Risks: Quantum Uncertainty and Competitive Pressures

The most critical risk for OneSpan lies in its strategic pivot toward quantum-resistant encryption. While its Quantum-Safe Encryption (QSE) platform is aligned with NIST standards and gaining traction in finance and healthcare, widespread adoption remains years away. Delays in regulatory timelines or slow enterprise migration could stifle growth.

Moreover, the company's Zacks Rank of #3 (Hold) and the flat revenue forecast suggest a cautious outlook. Earnings revisions have remained stable over the past 30 days, indicating analyst uncertainty.

Upcoming Earnings and Strategic Positioning

With earnings due on August 5, 2025, investors will scrutinize Q2 results for signs of recovery. The company's estimated EPS of $0.27—a 12.9% decline year-over-year—signals near-term headwinds. However, its long-term positioning in the $100 billion cybersecurity market, which is projected to grow at 10% annually through 2030, remains attractive. OneSpan's 107% net retention rate on ARR and its focus on high-margin subscription models provide a solid foundation.

Historically, earnings releases have shown a mixed pattern for OSPN. While the 3-day and 10-day win rates after earnings announcements have averaged 14.29% and 28.57% respectively—indicating short-term volatility—the 30-day win rate rises to 42.86%. Notably, the maximum return of 1.63% occurred 25 days post-earnings, suggesting that while the stock often dips in the immediate aftermath, it has historically trended higher in the longer term. This pattern implies that a simple buy-and-hold strategy could mitigate short-term risks while capitalizing on eventual momentum.

Investment Thesis: A High-Risk, High-Reward Scenario

OneSpan's stock appears undervalued based on traditional metrics, but its valuation discount reflects valid concerns about revenue stagnation and quantum adoption risks. For risk-tolerant investors, the stock could be a compelling opportunity if the company demonstrates progress in scaling its QSE platform and stabilizing revenue. However, the upcoming earnings report and Q3 guidance will be pivotal.

Recommendation: Consider a cautious long position in OneSpan, with a stop-loss below $15 to mitigate downside risk. Monitor adoption trends in quantum-resistant encryption and the company's ability to diversify revenue streams. While the fundamentals are strong, patience and close attention to earnings revisions will be essential for unlocking long-term value.
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