Digital twins are becoming increasingly prevalent in infrastructure engineering, presenting Bentley with a substantial and long-term growth opportunity. Essentially, a digital twin is a virtual representation of a physical asset, allowing for more accurate predictions of its behavior and progress from design to maintenance. By centrally storing and continuously monitoring data with input from multiple users, infrastructure projects can be managed more effectively.
Bentley’s financial performance reflects the strength of its software offerings and the rising adoption of digital technology in infrastructure. For instance, the company’s annualized recurring revenue (ARR) is steadily increasing at a low-teens rate, indicating a promising growth trajectory. Moreover, Bentley excels not only in growing ARR but also in retaining and expanding revenue from existing customers, as demonstrated by its impressive 12-month recurring net retention rate exceeding 100% for several years.
With solid prospects for future ARR and revenue generation, Bentley’s valuation may appear relatively high at 43 times expected 2024 earnings. Nevertheless, given the company’s robust growth in ARR, revenue, earnings, and free cash flow, it is poised to justify its valuation. The ongoing investment in infrastructure and the advantages of digitizing infrastructure projects will likely drive Bentley’s growth.
While achieving millionaire status may be a stretch for most investors, Bentley’s potential as a long-term growth stock is evident. Based on analyst estimates, the company’s price-to-free cash flow (FCF) multiple is expected to be reasonable by the end of 2025. With the projected growth in cash flow and share price over the next two decades, investing in Bentley now could yield significant returns.
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