The software industry is booming due to the demand for automation, digital transformation, CRM technologies, enhanced productivity, innovation, and customer satisfaction. Likewise, emerging innovations in mobile apps and IoT are fueling growth, while the widespread use of public cloud services and data-driven decisions strengthens the sector's long-term prospects.
Amid this favorable backdrop, high-quality tech stocks such as Salesforce, Inc. (CRM), Adobe Inc. (ADBE), and ServiceNow, Inc. (NOW) are wise choices to keep on one’s radar.
The global software market's optimism is fueled by the widespread adoption of advanced solutions, rapid growth in the Asia-Pacific region due to the rise of smart device applications, and increasing demand for AI-powered tools across various sectors, including analytics, cybersecurity, and management. Notably, the global business software market is projected to grow at a CAGR of 11.9% until 2030.
Moreover, the recent surge in cloud-based solutions, increased demand for Enterprise Resource Planning (ERP) software among SMEs, and a focus on improving business efficiency highlight a promising shift toward agile, cost-effective software solutions, driving market sales. As a result, the enterprise application software market is projected to grow by $134 billion, with a 7.8% CAGR until 2028.
Furthermore, investors’ interest in software stocks is evident from the iShares Expanded Tech-Software ETF’s (IGV) 24.5% returns over the past year. Considering these conducive trends, let’s analyze the fundamental aspects of the three Software picks.
Salesforce, Inc. (CRM)
CRM provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company's service includes sales to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence, and deliver quotes, contracts, and invoices.
On July 24, 2024, CRM and Workday announced a strategic partnership to create an AI-powered employee service agent, integrating HR, financial, and CRM data to enhance productivity and improve employee experiences. The partnership will also deepen Workday’s integration with Slack for seamless collaboration.
On May 22, 2024, CRM announced new Einstein 1 Marketing and Commerce innovations, including Einstein Copilot for automating marketing and merchandising tasks and Data Cloud for Commerce to unify business and customer data. These tools aim to enhance personalized customer experiences and boost sales through advanced AI-powered insights and automation.
In terms of the trailing-12-month EBITDA margin, CRM’s 25.74% is 152% higher than the 10.21% industry average. Likewise, its 76% trailing-12-month gross profit margin is 53.2% higher than the 49.62% industry average. Its 18.45% trailing-12-month EBIT margin is 268.2% higher than the 5.01% industry average.
CRM’s total revenues for the fiscal first quarter that ended on April 30, 2024, rose 10.7% year-over-year to $9.13 billion. Its non-GAAP income from operations rose 28.8% from the year-ago value to $2.93 billion. Similarly, the company’s non-GAAP net income and non-GAAP net income per share came in at $2.41 billion and $2.44 per share, up 43.8% and 44.4% over the prior-year quarter, respectively.
Street expects CRM’s EPS and revenue for the quarter ended July 31, 2024, to increase 11.1% and 7.3% year-over-year to $2.36 and $9.23 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26.2% to close the last trading session at $264.
CRM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. Within the Software - Application industry, it is ranked #27 out of 128 stocks. To access additional grades for CRM’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Adobe Inc. (ADBE)
ADBE provides professionals, communicators, businesses, and consumers with a range of products and services to create, manage, deliver, measure, optimize, engage, and transact with content and experiences across diverse digital media formats. Its segments include Digital Media; Digital Experience; and Publishing and Advertising.
On June 27, 2024, ADBE launched Adobe Content Hub with AEM Assets, a tool that enhances how brands manage and utilize creative assets. It integrates Adobe Express and Firefly generative AI for streamlined content creation and remixing, improving efficiency and personalization across marketing channels.
On June 17, 2024, ADBE and TikTok announced an integration that adds TikTok’s Commercial Music Library to Adobe Express via the Symphony Assistant add-on. This allows users to access over a million pre-cleared songs for creating and publishing TikTok content efficiently.
In terms of the trailing-12-month Return on Common Equity margin, ADBE’s 34.22% is 648.7% higher than the 4.57% industry average. Similarly, its 32.11% trailing-12-month levered FCF margin is 206.7% higher than the 10.47% industry average. Additionally, its 24.86% trailing-12-month net income margin is 570.8% higher than the 2.71% industry average.
For the second quarter ended May 31, 2024, ADBE’s total revenues increased 10.2% year-over-year to $5.31 billion. During the same period, its non-GAAP operating income grew 11.9% from the previous year to $2.44 billion. Additionally, its non-GAAP net income and non-GAAP EPS were $2.02 billion and $4.48, respectively, representing increases of 12.8% and 14.6% year-over-year.
Analysts expect ADBE’s EPS and revenue for the quarter ending August 31, 2024, to increase 10.6% and 9.9% year-over-year to $4.54 and $5.37 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 15.5% to close the last trading session at $558.30.
ADBE’s POWR Ratings reflect a bright outlook. It has an A grade for Quality and a B for Sentiment. It is ranked #36 in the same industry. Beyond what we stated above, we also have given ADBE grades for Growth, Value, Momentum, and Stability. Get all the ADBE ratings here.
ServiceNow, Inc. (NOW)
NOW provides enterprise cloud computing solutions that define, structure, consolidate, manage, and automate services for enterprises worldwide. The company operates the Now platform for workflow automation, artificial intelligence, machine learning, robotic process automation, process mining, performance analytics, electronic service catalogs and portals, data benchmarking, encryption, etc.
On July 24, 2024, NOW announced a strategic investment in Prodapt, a leading telecom services provider. This move, NOW’s first Ecosystem Ventures investment in the telecom sector, aims to drive digital transformation through AI-enabled solutions and expanded expertise on the Now Platform.
On the same date, NOW and Boomi announced a strategic partnership to enhance customer experiences through AI-powered self-service. NOW will integrate Boomi’s API Management with its Automation Engine for improved API visibility and governance, while Boomi will use NOW’s solutions to streamline customer support and self-service.
In terms of the trailing-12-month net income margin, NOW’s 11.51% is 210.6% higher than the 3.71% industry average. Its 6.29% trailing-12-month Return on Total Assets is 202.7% higher than the 2.08% industry average. Also, its 7.98% trailing-12-month Capex / Sales is 278.4% higher than the industry average of 2.11%.
During the second quarter ended June 30, 2024, NOW's non-GAAP total revenues rose 22.5% year-over-year to $2.64 billion. Its non-GAAP gross profit rose 23.1% from the year-ago quarter to $2.17 billion. Its non-GAAP net income rose 34% year-over-year to $651 million. Also, the company’s non-GAAP earnings per share came in at $3.13, representing an increase of 32.1% year-over-year.
For the quarter ending September 30, 2024, NOW’s revenue is expected to increase 20.1% year-over-year to $2.75 billion. Its EPS for the same quarter is expected to rise 18.2% year-over-year to $3.45. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 45.8% to close the last trading session at $828.27.
NOW’s POWR Ratings reflect its solid prospects. It is ranked #16 out of 39 stocks in the B-rated Software – Business industry. It has a B grade for Growth, Sentiment, and Quality. To see NOW’s Value, Momentum, and Stability ratings, click here.
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CRM shares were trading at $266.52 per share on Monday afternoon, up $2.52 (+0.95%). Year-to-date, CRM has gained 1.57%, versus a 18.88% 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.
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