The growing use of technologies like artificial intelligence and the widespread adoption of the Software-as-a-Service model by both private users and companies are expected to drive growth in the software industry.
As the industry shows solid potential, investors could consider buying quality software stocks Splunk Inc. (SPLK), Informatica Inc. (INFA), and MiX Telematics Limited (MIXT) before August to capitalize on the industry’s tailwinds.
The Software-as-a-Service (SaaS) model is becoming increasingly popular for private users and companies looking for ways to account for increasingly complex and costly integrated application environments while also shrinking implementation cycles.
This development is driving the demand for enterprise software, and the corresponding segment is the market’s largest segment in terms of revenue shares. Revenue in the software market is expected to show a CAGR of 5.4%, resulting in a market volume of $858.10 billion by 2028.
A surge in the volume of enterprise data, rising automation of business processes, and growing digitization are the major drivers of the software market. Moreover, rising network security and privacy concerns support the industry's growth.
Let’s discuss the stocks mentioned above in detail:
Splunk Inc. (SPLK)
SPLK develops and markets cloud services and licensed software solutions in the United States and internationally.
On July 18, 2023, SPLK announced Carnival Corporation & plc (CCL), the world's largest cruise company, is using Splunk software to help provide a secure and seamless customer experience to 300,000+ guests and crew every day worldwide.
A collection of floating cities, Carnival Corporation's fleet relies on its systems running securely to offer the best guest experience possible, and it requires visibility into all systems to ensure around-the-clock maritime operations and safety, where Splunk plays a critical role.
On the same day, SPLK announced the launch of Splunk AI, a collection of new AI-powered offerings to enhance its unified security and observability platform. Launched at .conf23, Splunk AI combines automation with human-in-the-loop experiences, so organizations can drive faster detection, investigation, and response while controlling how AI is applied to their data.
Leaning into its lineage of data visibility and years of innovation in AI and machine learning (ML), Splunk continues to enrich the customer experience by delivering domain-specific insights through its AI capabilities for security and observability.
SPLK’s trailing-12-month gross profit margin of 77.99% is 60.3% higher than the 48.66% industry average. Its trailing-12-month asset turnover ratio of 0.67x is 9.8% higher than the 0.61x industry average.
SPLK’s total revenue increased 11.5% year-over-year to $751.51 million in the fiscal first quarter, which ended April 30, 2023. Its net loss decreased 35.5% year-over-year to $196.42 million and net loss per share decreased 37.4% year-over-year to $1.19.
SPLK’s revenue is expected to increase 11.2% year-over-year to $888.49 million for the fiscal second quarter ending July 2023. The company’s EPS for the same quarter is expected to increase 405.4% year-over-year to $0.45. Moreover, SPLK topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 28.6% over the past nine months to close the last trading session at $105.37.
SPLK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SPLK also has a B grade for Growth, Sentiment, and Quality. It is ranked #4 out of 26 stocks in the B-rated Software - SAAS industry.
To access additional ratings for SPLK’s Growth, Quality, and Sentiment, click here.
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 20, 2023, INFA announced the availability of the company’s leading end-to-end AI-powered data management platform Intelligent Data Management Cloud (IDMC) in Amazon Web Services (AWS) Asia Pacific (Tokyo) Region to support customers in their data-led cloud modernization journey, enabling them to manage, access, and accelerate data transformation for trusted business insights, while complying with data residency requirements in the country.
On June 14, INFA announced its intent to acquire Privitar bringing advanced access controls and remediation for data privacy and security to Informatica's AI-powered Intelligent Data Management Cloud (IDMC) platform.
Privitar is a UK-based data management access and privacy software provider that powers organizations to democratize the ethical and safe use of data across enterprises. The company's modern data access management solution builds collaborative workflows and policy-based data privacy and access controls into data operations.
INFA’s trailing-12-month gross profit margin of 79.28% is 62.9% higher than the 48.66% industry average. Its trailing-12-month EBITDA margin of 12.30% is 37.9% higher than the 8.92% industry average.
During the fiscal first quarter that ended March 31, 2023, INFA’s total revenues increased marginally year-over-year to $265.43 million. Gross profit increased 1.8% year-over-year to $283.53 million, while its non-GAAP income from operations increased 1.7% year-over-year to $84.13 million.
Analysts expect INFA’s revenue to be $360.50 million for the fiscal second quarter that ended June 2023. Its EPS is expected to be $0.12 for the same quarter. Moreover, INFA topped consensus EPS estimates in three of the trailing four quarters.
Shares of INFA have gained 21.7% over the past three months to close the last trading session at $18.78.
INFA’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Stability and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated for Growth, Value, Sentiment, and Momentum. Get all INFA ratings here.
MiX Telematics Limited (MIXT)
MIXT provides fleet and mobile asset management solutions through software-as-a-service (SaaS) delivery model.
Its trailing-12-month gross profit margin of 62.67% is 28.8% higher than the 48.66% industry average. Its trailing-12-month EBITDA margin of 19.99% is 124.2% higher than the 8.92% industry average.
The company pays an annual dividend of $0.23, which translates to a yield of 3.57% at the current price level. It has a four-year average dividend yield of 2.51%. Its dividend payments have grown at a CAGR of 2.4% over the past five years.
MIXT's hardware and other revenue rose 11.4% year-over-year to $4.84 million in the fiscal fourth quarter ended March 31, 2023. The company’s net income increased 54.2% year-over-year to $3.49 million, while its net income per ordinary share increased 50% year-over-year to $0.006.
Street expects MIXT’s revenue to increase 2.2% year-over-year to $36.52 million for the fiscal first quarter ended June 2023. The company’s EPS for the same quarter is expected to increase 68.8% year-over-year to $0.14.
The stock has gained 10% over the past month to close the last trading session at $6.71.
MIXT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
MIXT has a B grade for Value. It is ranked #3 in the same industry.
Click here to see the additional POWR Ratings for MIXT (Growth, Momentum, Stability, Quality, and Sentiment).
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SPLK shares were trading at $105.36 per share on Thursday morning, down $0.01 (-0.01%). Year-to-date, SPLK has gained 22.38%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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