The Outperforming Software Stock No One is Talking About How could a proven winner fly under the radar for so long? Let's learn more about Aspen Technology, why it's outperforming and where it could go from here.

Like the mountains of Aspen, Colorado, Aspen Technology, Inc. (NASDAQ:AZPN) is displaying some serious elevation.

The large cap software company continues to climb to new record highs, leaving struggling industry peers at the bottom of the slope. It is up 63% year-to-date and all but certain to finish higher for the eighth consecutive year. Over the past 10 years, it has steadily ascended to a 10-bagger.

And yet somehow it remains a relative unknown among investors.

How could a proven winner fly under the radar for so long? For one, it operates in a corner of the software industry we simply don't hear much about. Two, it doesn't fit the mold of a flashy headline-capturing tech company.

Let's learn more about this high-altitude business, why it's outperforming and where it could go from here.

What Does Aspen Technology Do?

Based in Massachusetts (and not the Rocky Mountains), Aspen Technology provides software that helps resource-related businesses design equipment, operations and maintenance programs. Its customers, which are primarily in the energy and materials sectors, derive improved profitability and sustainability from Aspen's asset optimization solutions. Oil refiners and manufacturers are among its most common customers.

The company's flagship offering is aspenONE, a trio of suites that support asset performance management (APM), real-time decision making, predict equipment failure and forecast potential actions and remedies. At the core, they promote the efficiency and productivity gains that are so essential to the modern manufacturing industry.

From an investment perspective, the main attraction here is that aspenONE is subscription-based software that generates predictable, recurring revenue. License revenue accounts for roughly two-thirds of overall revenue and is supplemented by revenue from ongoing support, training, and other professional services.

What are Aspen Technology's Growth Drivers?

The uptake of Aspen software has been gaining steam during the economic recovery. In its recently completed fiscal year (12 months ended June 30th, 2022), the company flashed 40% profit growth—twice that of top-line growth. Talk about productivity!

And while most software players experienced a demand slowdown in Q2, Aspen's trended higher. The company's key "annual spend' metric grew 8.5% year-over-year and 2.8% sequentially, a sign of strength in end market demand.

On top of the impressive organic growth, Aspen Technology's aggressive M&A strategy has it poised to perform well over the long haul. It is in the process of integrating the Geological Simulation Software (GSS) and OSI Inc. businesses it acquired from Emerson. These are expected to expand its presence in the utility sector and create cross-sell opportunities to current power-related customers.

This summer, Aspen Technology signed a $623 million all-cash deal to buy Micromine, an Australian maker of next-gen technologies for the mining industry. The move was designed to not only help the company bolster its competitiveness Down Under but also strengthen its portfolio through the addition of end-to-end mining software. Given the Australian mining space is an estimated half trillion dollar market, it could prove to be a lucrative takeout.

Aspen Technology has multiple secular trends in its favor. The adoption of performance-enhancing cloud-based software, big data analytics, and Internet-of-Things are all long-term growth drivers. While global software spending has slowed of late amid macro concerns, these growth themes are here to stay — and should keep Aspen's evolving product suite in demand for years to come.

Is it Too Late to Invest in Aspen Technology?

Despite the amazing run, Aspen Technology appears to have more growth to come. For fiscal 2023, management is anticipating 12% growth in annual contract value (ACV) at the midpoint. ACV refers to the annualized value of the company's license, maintenance and support agreements. This means it expects new customers to come on board and existing customers to expand their contracted services.

The consensus forecast for fiscal 2023 earnings translates to a forward P/E ratio of 37x. This may seem expensive but given the above-industry growth profile and long-term growth catalysts, the premium valuation may be money well spent.

With this said, Aspen Technology shares are trading within 5% of their all-time high and near the upper end of their trading range. Waiting for a 10% pullback to around $225 may present a more prudent entry point for long-term investors.

Aspen Technology is scheduled to report fiscal 2023 first-quarter results after the close on October 26th. Wall Street is projecting another stellar performance highlighted by 62% year-over-year earnings growth (which would be an acceleration from last quarter's 59%). The stock may again be an attractive earnings play—but more importantly, it is one growth investors should get acquainted with.