The Software-as-a-Service (SaaS) industry is expected to continue playing a significant role in the increasingly digital and data-driven economies. Enterprises continue to adopt cloud-based services for better efficiency and convenience. Furthermore, the growing adoption of hybrid-working culture across the globe should boost the industry’s growth.
SaaS is being increasingly used for forecasting, analysis, and delivery functions in various applications such as conferencing, salesforce automation, customer relationship management (CRM), web content management, and others. According to a report by Fortune Business Insights, the global SaaS market size is projected to reach $716.52 billion in 2028, growing at a CAGR of 27.5%.
However, the Fed’s recent third consecutive 75-basis-point hike and an indication of further aggressive rate hikes have dampened market sentiments. Persistent monetary policy tightening also makes borrowing more expensive, starving the growing businesses of funds required to sustain the growth needed to reach economies of scale and steady profitability.
While most technology stocks have been hit hard lately due to concerns over rising borrowing costs, fundamentally strong SaaS stock Informatica Inc. (INFA) could be an ideal investment to capitalize on the industry’s long-term growth prospects.
However, another SaaS stock, Palantir Technologies Inc. (PLTR), might be best avoided now, given its fundamental weakness.
Stock to Buy:
Informatica Inc. (INFA)
INFA operates as an enterprise cloud data management company. It connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale through Informatica Intelligent Data Management Cloud (IDMC), its artificial intelligence-powered end-to-end data management platform.
On September 20, INFA announced its partnership with UK Export Finance to help modernize the latter’s data architecture and integrate it on a single cloud platform with IDMC.
On August 25, INFA announced that HelloFresh, the world’s leading meal kit company, would be leveraging INFA’s data management solutions to improve forecasting, scale to meet demand, and manage data as a strategic asset.
For the second quarter of fiscal 2022 ended June 30, 2022, INFA’s revenue and gross profit increased 8.8% year-over-year to $372.04 million and $285.63 million, respectively. During the same period, the company’s non-GAAP net income increased 34.1% year-over-year to $44.90 million, which translated to $0.16 per share, up 23.1% year-over-year.
Analysts expect INFA’s revenue for the fiscal 2022 third quarter (ending September 2022) to increase 7.8% year-over-year to $390.17 million. The company’s revenue is expected to increase 7.3% year-over-year to $1.55 billion for the entire fiscal year. INFA has surpassed the consensus EPS estimates in three of the trailing four quarters.
INFA’s stock has gained 8% over the past six months to close the last trading session at $20.77.
INFA’s sound fundamentals and stable outlook are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
INFA has an A grade for Sentiment and a B grade for Growth. It tops the list of 25 stocks in the Software - SAAS industry.
In addition to the above, we have also rated INFA for Value, Momentum, Stability, and Quality. Click here to access all ratings for INFA.
Stock to Sell:
Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms that help organizations integrate their data, decisions, and operations at scale. The company operates through two segments: Government and Commercial.
For the fiscal 2022 second quarter ended June 30, 2022, PLTR reported an adjusted net loss of $21.12 million attributable to common stockholders, compared to an adjusted net income of $97.96 million in the previous-year quarter. This resulted in an adjusted loss of $0.01 per share for the same period, compared to a gain of $0.04 a year ago.
The consensus EPS estimate of $0.02 for the fiscal third quarter, ending September 2022, indicates a 57.4% decline year-over-year. For the entire fiscal 2022, PLTR’s EPS is expected to decrease 61.8% year-over-year to $0.05. Additionally, PLTR has missed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 57.5% year-to-date to close its last trading session at $7.94.
PLTR’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system. The stock has an F grade for Sentiment and a D for Value and Stability. It is ranked #20 of 25 stocks in the same industry.
Click here to access additional POWR Ratings for Growth, Momentum, and Quality for PLTR.
PLTR shares were trading at $8.02 per share on Thursday afternoon, up $0.08 (+1.01%). Year-to-date, PLTR has declined -55.96%, versus a -22.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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