The rising use of software in most businesses and the growing popularity of cloud computing are expected to drive growth in the software industry. So, investors could buy software stocks Dynatrace, Inc. (DT), Verint Systems Inc. (VRNT), and Consensus Cloud Solutions, Inc. (CCSI) for accelerated 2024 gains.
The software market is primarily driven by the rapid development of technologies like blockchain, artificial intelligence, cloud computing, machine learning, and the Internet of Things. These technologies provide new avenues for the creation and use of software, which stimulates the development of cutting-edge solutions and applications. The global software market is expected to grow at a CAGR of 11.9% until 2032.
Furthermore, the rapid increase in enterprise data volume and the automation of business processes across end-use industries such as retail, manufacturing, healthcare, and transportation is driving demand for business software and services. The global business software and services market is expected to expand at a CAGR of 11.9% until 2030.
In addition, the increasing adoption of cloud computing, the growing popularity of subscription-based models, and the need for cost-effective and flexible software solutions are expected to drive growth in the SaaS market. The global software as a Service (SaaS) market is projected to grow at a CAGR of 18.1% until 2032.
Considering these conducive trends, let's take a look at the fundamentals of the three best software stocks.
Dynatrace, Inc. (DT)
DT provides a security platform for multicloud environments. It operates Dynatrace, a security platform, which provides application and microservices monitoring, runtime application security, infrastructure monitoring, log management and analytics, digital experience monitoring, digital business analytics, and cloud automation.
In November, DT achieved the Amazon Web Services (AWS) Security Competency. By earning this competency, DT has demonstrated expertise in helping its customers proactively remediate vulnerabilities and defend against threats across their AWS environments.
This recognition reinforces DT’s position as a trusted AWS partner and is a testament to its AI-powered approach to identifying, blocking, and investigating vulnerabilities in hybrid and multicloud environments. It further motivates the company to continue helping customers accelerate cloud migration and transformation with confidence.
DT’s trailing-12-month net income margin of 13.06% is 453.7% higher than the 2.36% industry average. Its trailing-12-month ROTA of 6.09% is significantly higher than the industry average of 0.31%.
DT’s total revenue for the fiscal second quarter that ended September 30, 2023, increased 25.9% year-over-year to $351.70 million. Its non-GAAP income for operations rose 46% year-over-year to $106.44 million. Its free cash flow for the quarter stood at $34.13 million, up 36.1% year-over-year.
The company’s non-GAAP net income increased 45% year-over-year to $93.49 million. In addition, its non-GAAP net income per share rose 40.9% year-over-year to $0.31.
Street expects DT’s revenue and EPS for the fiscal third quarter ending December 2023 to increase 20.3% and 11.8% year-over-year to $357.73 million and $0.28, respectively. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
DT’s shares have gained 30.6% over the past nine months to close the last trading session at $52.80.
DT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
DT has a B grade for Quality, Sentiment, and Growth. It is ranked #28 out of 133 stocks in the Software - Application industry.
Click here to see the additional POWR Ratings for DT (Momentum, Value, and Stability).
Verint Systems Inc. (VRNT)
VRNT provides customer engagement solutions worldwide. It offers various applications for use in Forecasting and Scheduling, which understands the work needed to meet and exceed customer expectations; Quality and Compliance that uses automation and analytics for customer interactions for attended and self-service channels.
VRNT’s trailing-12-month levered FCF margin of 13.25% is 53.15% higher than the industry average of 8.65%. Its trailing-12-month gross profit margin of 69.63% is 42.5% higher than the industry average of 48.88%.
VRNT’s total revenues for the fiscal third quarter ended October 31, 2023, increased came in at $218.55 million. Its operating income increased 23.2% from the year-ago quarter to $26.72 million. The company’s net income grew 204.4% from the same quarter last year to $12.87 million, and net income per common share came in at $0.12 compared to negative $0.02 in the previous-year quarter.
The consensus revenue estimate of $262.25 million for the fiscal fourth quarter ending December 2023 represents a 10.8% increase year-over-year. Its EPS is expected to grow 29.3% year-over-year to $0.97 for the same quarter. It surpassed EPS and revenue estimates in three of four trailing quarters.
Shares of VRNT has gained 15.6% over the past three months to close the last trading session at $26.29.
VRNT’s POWR Ratings reflect its positive 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 Growth and Value. The stock is ranked #15 out of 42 stocks in the B-rated Software - Business industry.
Beyond what is stated above, we’ve also rated for Stability, Sentiment, Quality, and Momentum. Get all VRNT ratings here.
Consensus Cloud Solutions, Inc. (CCSI)
CCSI provides information delivery services with a software-as-a-service platform worldwide. It serves the healthcare, government, financial services, law, and education industries.
CCSI’s trailing-12-month gross profit margin of 81.52% is 66.8% higher than the 48.88% industry average. Its trailing-12-month levered FCF margin of 14.05% is 62.5% higher than the 8.65% industry average.
In the third quarter, which ended on September 30, 2023, CCSI revenues came in at $90.56 million. The company’s non-GAAP net income and non-GAAP EPS came in at $29.72 million and $1.51, up 4.2% and 5.6% year-over-year, respectively. Its adjusted EBITDA came in at $47.50 million.
Street expects CCSI’s revenue to be $88.64 million for the quarter ending December 2023. Its EPS is expected to grow at 3.7% year-over-year to $1.17 for the same quarter.
The stock gained 28.9% over the past month to close the last trading session at $24.67.
CCSI’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B in Quality. It is ranked #10 in the 21-stock in the A-rated Software - SAAS industry.
To access CCSI’s additional ratings for Growth, Sentiment, Stability, and Momentum, Click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DT shares were trading at $51.78 per share on Wednesday afternoon, down $1.02 (-1.93%). Year-to-date, DT has declined -5.32%, versus a -1.30% 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.
3 Software Stock Aces to Buy for Accelerated 2024 Gains StockNews.com
