The global dependence on technology and digital solutions is steadily rising. This enduring need for software solutions spanning diverse sectors, from business and healthcare to entertainment, signifies a highly favorable path of advancement for the industry.
Against the backdrop, in this article, we will examine the fundamentals of three promising software stocks, The Sage Group plc (SGPYY), EverCommerce Inc. (EVCM), and Consensus Cloud Solutions, Inc. (CCSI), which could be solid additions to your portfolio.
In the era of rapid technological advancement, individuals, businesses, and governments are quickly adopting innovative solutions to bolster their operations.
According to Gartner's projections, global software spending is expected to experience a year-on-year growth of 13.7% in 2023, reaching a total of $922.75 billion. Furthermore, the forecast for 2024 suggests that global software spending will surge to $1.05 trillion, reflecting a 14.1% year-on-year increase.
Simultaneously, the global market for business software is forecasted to expand significantly to $987.61 billion by 2028, with a CAGR of 11.2%.
Moreover, Software-as-a-Service (SaaS) is emerging as one of the most rapidly expanding categories in the software industry and is favored by the majority of companies due to its capability for scalability and enabling productivity anytime and anywhere.
The global market size for SaaS is projected to expand from $167.53 billion in 2022 to $462.94 billion by 2028, growing at an impressive CAGR of 18.5% during the period spanning from 2022 to 2028.
Additionally, governments around the world are increasingly embracing SaaS solutions due to their unique benefits in the public sector and the demand for flexible technology solutions in the digital landscape.
In 2022, the global government cloud market attained a size of $32.70 billion. Looking ahead, this market is anticipated to hit $81.20 billion by 2028, with a projected CAGR of 15.6% from 2023 to 2028.
Given the industry's impressive growth prospects, let us look into the fundamentals of the featured stocks within the B-rated Software – SAAS industry, starting with the third choice.
Stock #3: The Sage Group plc (SGPYY)
Based in Newcastle upon Tyne, the United Kingdom, SGPYY provides technology solutions and services for small and medium businesses in North America, Northern Europe, and internationally. It offers cloud-native solutions, HR and people management solutions, finance and business management solutions, and more.
On June 28, SGPYY announced an expanded relationship with Amazon Web Services (AWS) to assist Small and Medium-sized Businesses (SMBs) in accelerating their digital transformation journey and making the most of cutting-edge technology advancements.
By leveraging this collaboration, SGPYY’s customers will be able to experience heightened flexibility in their ability to grow rapidly, all while being reassured that they are backed by the reliability, security, and accessibility provided by AWS. This could benefit the company.
In the same month, SGPYY introduced its worldwide Managed Services program. This initiative brings forth Sage Intacct, the acclaimed accounting and finance solution catering to expanding mid-sized clients of larger accounting firms globally.
The introduction of the managed services program signifies a significant advancement in alignment with SGPYY's strategic objectives. This initiative provides upgraded capabilities to accountancy firms and managed service providers, marking a noteworthy progression.
For the six-month period that ended March 31, 2023, SGPYY’s underlying total revenue increased 16.3% year-over-year to £1.09 billion ($1.38 billion), while its underlying gross profit rose 16.6% from the year-ago value to £1.01 billion ($1.27 billion).
The company’s underlying profit for the period and EPS rose 24% from the prior-year quarter to £160 million ($201.89 million) and 15.49p, respectively. Also, its underlying operating profit grew 24% year-over-year to £227 million ($286.44 million).
Analysts expect SGPYY’s revenue for the fiscal year (ending September 2023) to increase 17.9% year-over-year to $2.73 billion. Likewise, the consensus revenue estimate of $2.95 billion for the fiscal year 2024 indicates a 7.9% rise year-over-year.
Over the past year, the stock has gained 46% to close the last trading session at $49.57.
SGPYY’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to 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 Stability. Among the 24 stocks in the B-rated Software – SAAS industry, it is ranked #8. To see additional POWR Ratings for Growth, Value, Momentum, Sentiment, and Quality of SGPYY, click here.
Stock #2: EverCommerce Inc. (EVCM)
EVCM provides integrated software-as-a-service solutions for service-based small and medium-sized businesses in the United States and worldwide. The company's solutions include business management software that offers route-based dispatching, medical practice management, gym member management solutions; billing and payment solutions, etc.
On June 15, EVCM revealed that its Board of Directors approved a share repurchase initiative worth $50 million. This program allows the company to selectively buy back its common shares, amounting to a maximum of $50 million, over the next six months.
Eric Remer, Chairman and CEO of EVCM, expressed the belief that share repurchases constitute a beneficial and appealing way to utilize capital, leveraging the company's robust organic growth and margin profile to generate surplus free cash flow for the program's funding.
For the second quarter, which ended on June 30, EVCM’s total revenues increased 8.1% year-year-year to $170.05 million, while its adjusted gross profit rose 9.5% from the year-ago value to $111.87 million.
In addition, the company’s operating income amounted to $1.78 million versus an operating loss of $6.10 million in the same period last year. Also, its adjusted EBITDA grew 26.2% from the prior-year quarter to $38.79 million.
The consensus revenue estimate of $175.97 million for the third quarter (ending September 2023) represents an 11.3% improvement year-over-year. Its EPS for the same quarter is expected to be $0.09. Moreover, the company’s EPS is projected to increase by 22.4% per annum over the next five years.
EVCM’s shares have gained 42.9% year-to-date and 63.8% over the past nine months to close the last trading session at $10.63.
EVCM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Growth and Sentiment and a B for Value and Stability. Within the same B-rated industry, it is ranked #7. Click here to see the other ratings of EVCM for Momentum and Quality.
Stock #1: Consensus Cloud Solutions, Inc. (CCSI)
CCSI provides information delivery services with a software-as-a-service platform worldwide. Some of its offerings include eFax Corporate, a digital cloud-fax technology; Unite, a single platform that allows users to choose between various protocols to send and receive healthcare information; jsign, an electronic and digital signature solution; etc.
On August 10, CCSI introduced Clarity Clinical DocumentationTM (Clarity CDTM). By leveraging natural language processing and an artificial intelligence engine, this innovative solution offers accessibility, affordability, and a seamless process for automatically directing unstructured clinical information from sources like faxes, handwritten notes, and scanned documents into the appropriate patient records.
The introduction of this novel solution marks a significant step forward in enhancing the secure exchange of healthcare data, simultaneously transforming the role of digital faxes within a health system's broader interoperability approach.
On May 18, CCSI partnered with Hyland Software Inc. to simplify cloud faxing processes for health systems. Commenting on this, the Chief Operating Officer at CCSI said, “This partnership with Hyland is a great opportunity for us to build upon our mission of providing meaningful connectivity and interoperability for healthcare organizations that we serve.”
In the fiscal second quarter, which ended on June 30, 2023, CCSI’s revenues increased 1.8% year-over-year to $92.79 million. Its gross profit rose marginally from the year-ago value to $75.55 million, and its adjusted EBITDA stood at $47.67 million.
During the same period, the company’s non-GAAP net income and non-GAAP EPS amounted to $26.73 million and $1.36, respectively. While its cash and cash equivalents came in at $111.98 million, up 18.9% compared to $94.16 million as of December 31, 2022.
Street expects CCSI’s revenue and EPS for the fourth quarter (ending December 2023) to increase 16.7% and 5.8% year-over-year to $95.47 million and $1.32, respectively.
The stock has gained marginally over the past month to close the last trading session at $31.43.
It’s no surprise that CCSI has an overall rating of B, which translates to Buy in our proprietary rating system. It has a grade of B for Value, Sentiment, and Quality. Out of 24 stocks in the same industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, we also have CCSI’s ratings for Growth, Momentum, and Stability. Get all CCSI ratings here.
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SGPYY shares were trading at $49.73 per share on Wednesday morning, up $0.16 (+0.32%). Year-to-date, SGPYY has gained 41.16%, versus a 18.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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