Tyler Technologies Inc (TYL)

Conclusion

Tyler Technologies provides integrated software and technology management solutions for the US public sector, through an Enterprise Software segment and a Platform Technologies segment. At 418.18 USD on 2026-11-09, the company has a market capitalisation of 16.6 billion USD.

The verdict is undervalued. Today's multiples sit below their own ten-year medians: the P/E is 49.6 against a median of 88.6, a premium of -44.0%, and EV/EBITDA is 29.6 against a median of 43.6, a premium of -32.1%. The DCF gives 493.69 USD per share at a discount rate of 8.9%, and the fair value from historical multiples is 622.94 USD. The fair value band runs from 446.65 to 669.98 USD with a midpoint of 558.32 USD, a margin of safety of 33.5% at the current price. The reverse DCF implies growth of 10.2% a year, against revenue growth of 15.9% a year over five years and free cash flow per share growth of 13.1% a year over the same period.

The strongest numbers are the Altman Z-score of 4.88, free cash flow conversion of 2.21 on a trailing basis, and net debt of 0.99 times EBITDA. The weakest are the return on invested capital of 10.3% against a cost of capital of 8.5%, a margin of only 1.8 percentage points that the model rates neutral, a share count that has risen at 1.1% a year over five years, and stock-based compensation equal to 6.4% of revenue. If growth slows toward the rate implied by the price, or the return spread over cost of capital narrows, the valuation case would weaken.

Financial health

Financial strength is green, held up by all four assessed measures: a current ratio of 1.33, net debt of 0.99 times EBITDA, interest coverage of 47.1 times and an Altman Z-score of 4.88 in the safe zone. The debt to equity ratio is 0.52 and the quick ratio is 1.26. The Altman model was designed for manufacturers, and this company is a software business, so its zone is indicative only. Insolvency risk is low, at about 0.2% by the estimate of the Ohlson model over one to two years. The company does not report its interest expense in the inputs, so the coverage figure is what it is. The balance sheet poses no visible near-term strain at these levels.

Earnings quality

Earnings quality is green. Free cash flow conversion is 2.21 on a trailing basis and 2.07 over five years, and the accrual ratio of -6.3% points to cash earnings running ahead of reported profit. Free cash flow after stock-based compensation is 581.2 million USD on a trailing basis. The Piotroski score is 7 of 9, and the Beneish M-score of -2.71 is read as unlikely to signal manipulation. The company beat estimates in 5 of its last 8 quarters, with an average surprise of 2.0%. Share count has risen at 1.1% a year over five years, so dilution is not being offset by buybacks. Estimate revisions for the current year are flat, while next year's estimates are up 1.3% over 90 days, with expected growth of 18.8%.

Profitability

Profitability is green. The gross margin of 47.1% and the operating margin of 15.6% both sit above their ten-year medians of 44.6% and 14.9%. The net margin is 13.5%, equal to its median, and operating margin stability is 16.2%. Return on invested capital is 10.3% against a cost of capital of 8.5%, a spread the model rates neutral at 1.8 percentage points. Return on equity is 12.0%. The DuPont split shows a net margin of 13.5%, an asset turnover of 0.41 and an equity multiplier of 1.52, so leverage contributes only modestly to the return on equity. The five-year median return on invested capital is 5.2%, so the recent return is well above its own history.

Growth

Growth is green. Revenue compound growth is 8.0% over three years, 15.9% over five years and 14.7% over ten years. Earnings per share compound at 23.0% over three years, 9.0% over five years and 15.0% over ten years. Free cash flow per share compounds at 23.0% over three years, 13.1% over five years and 21.4% over ten years. Revenue has grown in each of the last ten years. The three-year figures are faster than the five-year figures for both earnings and free cash flow, so recent acceleration is visible, though the three-year revenue rate is markedly slower than the five-year rate.

Valuation

Valuation is green, with the single assessed measure, the verdict, showing a margin of safety of 33.5%. Current multiples are well below their ten-year medians: P/E 49.6 against 88.6 (premium -44.0%), EV/EBITDA 29.6 against 43.6 (premium -32.1%), price to free cash flow 22.5 against 49.6 (premium -54.7%), price to sales 6.7 against 9.5 (premium -29.7%) and price to book 6.0 against 6.8 (premium -11.7%). The DCF gives 493.69 USD per share at a discount rate of 8.9%, with 2.5% terminal growth. The fair value from historical multiples is 622.94 USD. The fair value band of 446.65 to 669.98 USD is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies growth of 10.2%, against 15.9% delivered over five years. The company pays no dividend, so the forward yield is zero.

Risks

The return spread over the cost of capital is thin: return on invested capital of 10.3% against 8.5%, a gap the model rates neutral. If returns converge further toward the cost of capital, the justification for the premium the market paid historically would shrink. The share count has risen 1.1% a year over five years, so per-share value growth depends on operating growth staying ahead of dilution. Stock-based compensation at 6.4% of revenue is a real cost that the free cash flow after compensation figure already reflects. Three of eight quarters missed estimates, and current-year estimates are flat, so near-term earnings visibility is not perfect. About 61.5% of the DCF value sits in the terminal value, so the DCF is sensitive to long-run assumptions. The inputs do not include a debt maturity schedule or revenue by segment, so refinancing risk and the mix between the two segments cannot be assessed here.