Despite uncertain economic conditions, the software industry is expected to see solid growth as businesses look for digital solutions. This growth is driven by the increasing cloud computing and Software-as-a-Service (SaaS) market.
Considering these factors, it could be wise to invest in fundamentally strong software stocks Vimeo, Inc. (VMEO), Informatica Inc. (INFA), and MiX Telematics Limited (MIXT).
Before diving deeper into the fundamentals of these stocks, let’s talk about why the software industry is set to keep growing.
Companies have been actively investing in making their operations more digital and efficient. Services like Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) are replacing old-style software.
Moreover, companies are increasingly adopting cloud-based solutions. According to Gartner, spending on public cloud services will increase by 21.7% this year to reach around $597.30 billion, while spending on SaaS is expected to rise by 17.9% to $197.29 billion.
In addition, global software spending is projected to grow 12.3% this year and another 13.1% in 2024, crossing the trillion-dollar mark.
Investors’ interest in software stocks is evident from iShares Expanded Tech-Software Sector ETF’s () 38.4% gains this year.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Software - SAAS stocks, starting with number 3.
Stock #3: Vimeo, Inc. (VMEO)
VMEO and its subsidiaries provide video software solutions worldwide. The company provides video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
On June 20, 2023, VMEO announced the launch of an AI-powered video creation suite that allows users to generate video scripts, record with a teleprompter, and edit videos seamlessly. This suite aims to simplify video production, catering to both individuals and businesses and will be available as part of VMEO’s subscription plan.
On June 21, 2023, VMEO announced its partnership with Rev to provide caption and subtitle services, ensuring accessible and compliant videos. This collaboration combines Rev’s unbiased AI-powered accuracy with VMEO’s video platform to create inclusive content for a diverse audience.
Jason Chicola, CEO at Rev, said, “Vimeo has redefined storytelling, making it easy for anyone to tell great stories. With Rev, those stories can reach the world. We are committed to delivering the most accurate captions in every language, advancing our mission to understand the human voice.”
In terms of the trailing-12-month gross profit margin, VMEO’s 77.05% is 56.1% higher than the 49.37% industry average. Likewise, its 0.70x trailing-12-month asset turnover ratio is 44.7% higher than the industry average of 0.48x.
For the first quarter ended March 31, 2023, VMEO’s revenue came in at $103.58 million. Its non-GAAP gross profit came in at $80.30 million. The company’s adjusted EBITDA came in at $3.20 million. Additionally, its free cash flow for the period came in at $4.90 million.
For the quarter ending March 31, 2024, VMEO’s revenue is expected to increase 2.1% year-over-year to $105.80 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 19.2% year-to-date to close the last trading session at $4.09.
VMEO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 out of 25 stocks in the B-rated Software – SAAS industry. To see VMEO’s Growth, Momentum, and Stability, click here.
Stock #2: Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at enterprise scale in the United States.
On June 14, 2023, INFA announced its intention to acquire London-based startup Privitar, aiming to enhance data privacy within its AI-powered Intelligent Data Management Cloud (IDMC) platform. The deal aims to enable enterprises to leverage data while adhering to regulations and ethical principles.
Jitesh Ghai, EVP and chief product officer at INFA said, “In general there has been an immense amount of investment and innovation in data and analytics. We are always on the hunt for compelling technology and best of breed solutions.”
On June 20, 2023, INFA launched its AI-powered Intelligent Data Management Cloud (IDMC) on Amazon Web Services (AWS) Asia Pacific (Tokyo) Region, aiding customers in cloud-based data management while complying with data residency rules. This extends the Informatica-AWS partnership, benefiting digital transformation. The goal is secure, governed data solutions for better decision-making.
In terms of the trailing-12-month EBITDA margin, INFA’s 12.38% is 37% higher than the 9.04% industry average. Likewise, its 78.99% trailing-12-month gross profit margin is 64.9% higher than the 47.89% industry average. Additionally, its 32.52% trailing-12-month levered FCF margin is 366.6% higher than the industry average of 6.97%.
INFA’s total revenues for the fiscal second quarter ended June 30, 2023, increased 1.1% year-over-year to $375.99 million. Its non-GAAP net income rose 7.2% year-over-year to $48.14 million. In addition, its non-GAAP income per share increased 6.3% year-over-year to $0.17. Also, its adjusted EBITDA came in at $91.74 million, representing an increase of 21.8% year-over-year.
Analysts expect INFA’s EPS and revenue to increase 26.1% and 8% year-over-year to $0.23 and $401.65 million, respectively, The stock has gained 25.7% year-to-date to close the last trading session at $20.47.
INFA’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 in the Software – SAAS industry. It has an A grade for Growth and Sentiment and a B for Stability. Click here to see INFA’s Value, Momentum, and Quality ratings.
Stock #1: MiX Telematics Limited (MIXT)
MIXT and its subsidiaries provide fleet and mobile asset management solutions through a software-as-a-service (SaaS) delivery model. Its offers include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
In terms of the trailing-12-month EBITDA margin, MIXT’s 21.34% is 136.1% higher than the 9.04% industry average. Likewise, its 63.06% trailing-12-month gross profit margin is 31.7% higher than the 47.89% industry average. Additionally, its 10.48% trailing-12-month EBIT margin is 134.8% higher than the industry average of 4.47%.
For the fiscal first quarter ended June 30, 2023, MIXT’s total revenues increased 3.7% year-over-year to $36.35 million. Its gross profit rose 6.3% over the prior-year quarter to $21.73 million. The company’s net income attributable to MIXT increased 137.2% year-over-year to $1.61 million.
In addition, its EPS came in at $0.003, representing an increase of 200% year-over-year. Also, its adjusted EBITDA rose 44.3% year-over-year to $8.66 million.
Street expects MIXT’s EPS and revenue to increase 333.7% and 2.9% year-over-year to $0.13 and $36.12 million, respectively, for the quarter ending September 30, 2023. Over the past month, the stock has declined 2.8% to close the last trading session at $6.51.
MIXT’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth. Within the same industry, it is ranked first. In total, we rate MIXT on eight different levels. Beyond what we stated above, we also have given MIXT grades for Momentum, Stability, Sentiment, and Quality. Get all the MIXT’s ratings here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
INFA shares were trading at $20.50 per share on Wednesday morning, up $0.03 (+0.15%). Year-to-date, INFA has gained 25.84%, versus a 18.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 Best Software Picks for Good Investments in September StockNews.com
