Tyler Technologies (TYL)
Tecnología / Software empresarial para el sector público
Leading provider of software for the U.S. public sector (justice, taxation, public safety), with 87% recurring revenue and customer churn of just ~2%, trading at ~$349 after falling ~50% from its 52-week high due to a weak quarter and guidance cut; even after that decline, the entry multiple (39×) remains above what a mature quality software can justify, so on a 5-year base ~$353 (+0% total): Preserves value — a wide-moat business at a price that does not yet reflect it with margin of safety.
- Price
- $348.75
- Intrinsic value (5y, base)
- $353
- Total annual return (5y)
- 0.2%
- Status (nominal)
- Preserves value
- Margin of safety
- No margin
The essentials
- Leading provider of technology for local, state and federal U.S. governments, with more than 50,000 installations across 16,000 client sites; recurring revenue (subscriptions + maintenance) accounts for 87% of total and customer churn is just ~2% annually — the switching cost moat is high in mission-critical systems like justice and taxation.
- The migration of customers from on-premise to SaaS continues to accelerate: SaaS subscription revenue grew 21.7% in the second quarter of 2026, the 22nd consecutive quarter with growth of at least 20%, and annualized recurring revenue (ARR) rose 11% in 2025 to US$2.06 billion.
- The stock fell ~50% from its 52-week high following a weak Q4 2025 result and weak guidance (the loss of a payments contract in Texas for US$36 million was material); even so, with R&D spending accelerating (+73% year-over-year) and convertible debt refinanced at US$1.4 billion in May 2026, the current price still demands a multiple above what mature quality software can justify.
Intrinsic value — two valuation methods
By both methods, the value today (DCF $252 · Multiples $283) is below the market price ($349).
Pillars of the analysis
The verdict — today vs 5 years
Today — expensive, no margin of safety: at $349 trades ~23.1% above its value discounted to today (~$283); the expected return does not even reach the risk-free rate (4.5%).
At 5 years — Preserva valor: the target price ($353) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.
The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$176.
Thesis
The business
Tyler Technologies is the largest pure-play software provider for the U.S. public sector, with 87% recurring revenue, ~2% customer churn and a wide, stable switching-cost moat — 22 consecutive quarters with SaaS subscription growth of at least 20%. The quality of the business is not in doubt; the question is the price.
The valuation
A mature quality enterprise software business is valued by EV/NOPAT (GAAP operating income already expenses stock-based compensation, material relative to free cash flow — 21.9%) within a reference range of 14×-20×. At ~$349 Tyler trades at 39× NOPAT today — a growth multiple high-flying despite the fall of almost 50% from its 52-week high. The base case anchors year 1 at the midpoint of reaffirmed guidance on 29-Jul-2026 (revenue +9.5%) and decelerates smoothly to +6.8% by year 5, with operating margin compressing first by the acceleration in R&D spending and expanding thereafter toward 19.5%. With an exit multiple of 17× — within range, at the median because return on invested capital (~11.2%) exceeds the 10% bar but moderately, dragged by goodwill from years of acquisitions — value at 5 years stands at ~$353/share.
Margin of safety
No margin of safety: at this price capital is preserved, but it is not bought below its value. Total return +0% falls below the 4% floor of the method — Tyler pays no dividend, so all return depends on stock price appreciation — and margin of safety turns negative: even after the decline, market price remains above the maximum value the method justifies paying today. Verdict: Preserves value.
What to watch
The central disconfirmer is whether GAAP operating margin truly expands as the base case projects: the acceleration in R&D spending (+73% year-over-year, headcount +57.5%) must translate to sustained SaaS subscription growth, not just more spending. Also watch execution of the buyback — partially financed by the May 2026 convertible issuance (US$1.4 billion at 0.50%) that moved the company from net cash to net debt — and resolution of the pending state litigation since 2022.
Educational / informational. Does not constitute investment advice.