OneSpan (OSPN): A Contrarian Play Ahead of Key Earnings?

Is OneSpan's undervalued stock a hidden gem ahead of its May earnings report? Let's dissect the disconnect between its cheap valuation, shifting analyst sentiment, and the upcoming catalyst.

OneSpan (OSPN), a cybersecurity and digital trust solutions provider, has seen its stock languish in recent months despite a valuation that looks strikingly out of sync with its peers. With a Forward P/E of 11.3—roughly half the 25.94 industry average—the stock presents a compelling contrarian opportunity. However, its current Zacks Rank #4 (Sell) underscores skepticism among quantitative models. The question investors must ask: Can the May 1, 2025 earnings report bridge this gap and spark a reversal?

Valuation Discount vs. Zacks Rank: A Disconnect Worth Exploring

OneSpan's Forward P/E has consistently lagged its Internet - Software peers, even as its Zacks Rank has fluctuated between #4 (Sell) and #1 (Strong Buy) over the past year. This inconsistency arises from the Zacks Rank's reliance on earnings estimate revisions rather than static metrics. For instance, when analysts raised OneSpan's consensus EPS estimate by 5.4% to $1.45 in early 2025, its rank surged to #1 (Strong Buy). Conversely, the current #4 ranking stems from a lack of upward revisions in the past month, despite the stock's undervalued state.

The disconnect is further highlighted by the sector's robust performance. OneSpan operates in the top 30-36% of all industries by Zacks Industry Rank, with its sector (Computer & Technology) consistently outperforming broader markets. This suggests that while OneSpan's stock is cheap, its industry tailwinds could amplify a rebound if catalysts materialize.

The May Earnings Catalyst: A Pivot Point for Analyst Sentiment

The upcoming May 1, 2025 earnings report is critical. Analysts had previously projected a 27.91% decline in Q2 2025 EPS to $0.31, but recent upward revisions—such as a 42.11% EPS jump in February 2025—hint at improving fundamentals. If OneSpan exceeds expectations or guides positively, it could trigger a reversal in earnings estimate trends, pushing the Zacks Rank higher.

Historically, strong earnings have correlated with Zacks Rank upgrades. For example, when estimates rose to $1.45 in early 2025, the rank jumped to #1, lifting the stock by 20% in weeks. A similar dynamic could play out now, especially if the May report signals stabilization in earnings or margin improvements.

Contrarian Opportunity: Betting on a Turnaround

For contrarian investors, the current setup is intriguing:
- Valuation Discount: The stock trades at a 57% discount to its industry, a gap that may narrow if the business recovers.
- Zacks Rank Sensitivity: A single upward EPS revision could shift the rank to #3 (Hold) or better, attracting institutional buying.
- Sector Momentum: The Internet - Software industry's Zacks Rank of 73-87 (out of 250+) suggests broader tailwinds for cybersecurity plays like OneSpan.

Risks remain, of course. If earnings miss or guidance weakens, the stock could sink further. However, with the Forward P/E already pricing in pessimism, the downside may be limited compared to the upside potential of a Zacks Rank upgrade.

Investment Thesis: Buy the Dip Ahead of Earnings

OneSpan's valuation and industry positioning make it a prime candidate for contrarian investors willing to bet on a turnaround. The May earnings report is the key catalyst:
- Buy Signal: If EPS exceeds $0.31 or guidance improves, target a Zacks Rank upgrade and a stock price rebound.
- Hold Signal: If results are neutral, the #4 rank may persist, but the valuation discount could still offer a floor.
- Sell Signal: A significant miss or negative guidance could extend the downturn, though the stock's cheapness reduces downside risk.

Final Take

OneSpan's stock is stuck in a valuation rut, but the May earnings report offers a clear path to unlock its potential. With a Forward P/E that's half its peers' and a Zacks Rank sensitive to upward revisions, this could be a rare chance to buy a cybersecurity leader at a deep discount. For investors with a contrarian mindset, now is the time to position ahead of what could be a pivotal earnings moment.

Recommendation: Consider a moderate allocation to OSPN ahead of May earnings, with a focus on stop-loss discipline if results disappoint. A Zacks Rank upgrade could ignite a sharp rebound, rewarding those who dare to buy the dip.

This analysis is for informational purposes only. Always conduct your own research and consult a financial advisor before making investment decisions.