Due to digitization and data that is gathered online, businesses’ needs for data insights, customer assessments, and other types of business processes have significantly expanded. This trend fuels the demand for software solutions. So, investors could buy software stocks, The Sage Group plc (SGPYY), F5, Inc. (FFIV), and American Software, Inc. (AMSWA) this year.
The global software market is expected to grow at a CAGR of 11.5% until 2030. A surge in the volume of enterprise data, rising automation of business processes, and growing digitization are the major drivers of the market. Moreover, rising network security and privacy concerns support the industry's growth.
Furthermore, the increasing demand for various software applications to speed up and simplify business operations using advanced IoT technology and cloud-based solutions is expected to support the application software market growth. The demand for application development software is anticipated to gain steady traction over the coming years, owing to the need for scalable and customized software.
The global application development software market is projected to grow at a CAGR of 24.3% until 2028.
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 growing shift of enterprises towards SaaS from an on-premises model owing to the high cost of on-premises software deployment is further projected to propel the market growth.
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.
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 the United States, the United Kingdom, France, and internationally. It offers cloud native solutions, such as Sage Intacct, Sage People, Sage 200, Sage X3, Sage Accounting, Sage Payroll, and Sage HR.
In November 28, 2023, SGPYY announced the launch of Sage Construction Management in Canada. SGPYY is expanding its construction cloud suite with the addition of cloud pre-construction and project management capabilities to its industry-leading construction portfolio.
SGPYY’s trailing-12-month net income margin of 9.66% is 309.7% higher than the 2.36% industry average. Its trailing-12-month ROTA of 5.36% is significantly higher than the industry average of 0.38%.
SGPYY’s underlying total revenue for the year ended September 30, 2023, increased 12.1% year-over-year to £2.18 billion ($2.76 billion). Its underlying operating profit rose 21% year-over-year to £456 million ($577.10 million). The company’s EBITDA increased 15.9% year-over-year to £553 million ($699.86 million). Also, its underlying basis EPS came in at 32.25p, representing an increase of 25.3% year-over-year.
The consensus revenue came in at $3.02 billion for the fiscal year ending September 2024 represents a 10.7% increase year-over-year.
SGPYY’s shares have gained 50.3% over the past nine months to close the last trading session at $58.96.
SGPYY’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.
SGPYY has an A grade for Quality and a B in Stability and Growth. It is ranked #2 out of 21 stocks in the A-rated Software - SAAS industry.
Click here to see the additional POWR Ratings for SGPYY (Momentum, Value, and Sentiment).
F5, Inc. (FFIV)
FFIV provides multi-cloud application security and delivery solutions in the United States, Europe, the Middle East, Africa, and the Asia Pacific region. The company's distributed cloud services enable its customers to deploy, secure, and operate applications in any architecture, from on-premises to the public cloud.
FFIV’s trailing-12-month levered FCF margin of 21.23% is 145.5% higher than the industry average of 8.65%. Its trailing-12-month gross profit margin of 78.91% is 60.6% higher than the industry average of 49.14%.
For the fiscal fourth quarter that ended September 30, 2023, FFIV’s total revenue increased 1% year-over-year to $706.97 million. Its gross profit rose 2.4% over the prior-year quarter to $566.01 million. Additionally, the company’s net income and net income per share increased 70.3% and 71.1% from the year-ago quarter to $152.13 million and $2.55, respectively.
Street expects revenue for the fiscal first quarter ending December 2023 to be $685.66 million. Its EPS is expected to grow 23% year-over-year to $3.04 for the same quarter. It surpassed EPS estimates in each of four trailing quarters, which is impressive.
Shares of FFIV has gained 15.3% over the past three months to close the last trading session at $177.41.
FFIV’s POWR Ratings reflect its positive outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B in Value. The stock is ranked #3 out of 43 stocks in the B-rated Software - Business industry.
Beyond what is stated above, we’ve also rated for Stability, Sentiment, Growth, and Momentum. Get all FFIV ratings here.
American Software, Inc. (AMSWA)
AMSWA develops, markets, and supports computer business application software products internationally. The company operates through Supply Chain Management (SCM); Information Technology Consulting (IT Consulting); and Other segments. It offers network optimization, integrated business planning, IT staffing, consulting services, etc.
On December 20, 2023, AMSWA’s wholly-owned subsidiary, Logility, Inc., announced new functionality to its cloud-based (SaaS) Logility Digital Supply Chain Platform. New features leverage artificial intelligence (AI), machine learning (ML), and automation to continuously sense, analyze, and update activity in your digital supply chains. The release also deepens inventory, manufacturing, and ESG capabilities within the Logility platform.
AMSWA’s trailing-12-month gross profit margin of 59.15% is 20.4% higher than the 49.14% industry average. Its trailing-12-month levered FCF margin of 13.57% is 56.9% higher than the 8.65% industry average.
For the fiscal 2024 second quarter ended October 31, 2023, AMSWA reported total revenues of $25.69 million. Recurring revenue streams for Maintenance and Cloud Subscriptions and Maintenance revenues were $21.50 million and $8.10 million, respectively. Its adjusted EBITDA from continuing operations came in at $4.09 million. In addition, the company’s net earnings rose 12.3% year-over-year to $2.36 million.
Analysts expect AMSWA’s revenue to be $24.51 million for the quarter ending January 2024. Its EPS is expected to be $0.08 for the same quarter. Moreover, it has surpassed EPS estimates in three of four trailing quarters.
The stock gained 11% over the past month to close the last trading session at $11.57.
AMSWA’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 a B grade for Value and Sentiment. It is ranked #42 in the 133-stock in the Software - Application industry.
To access AMSWA’s additional ratings for Growth, Quality, Stability, and Momentum, Click here.
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SGPYY shares were trading at $60.00 per share on Thursday afternoon, up $1.04 (+1.76%). Year-to-date, SGPYY has gained 1.05%, versus a -0.44% 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 Stocks Investors Are Buying in 2024 StockNews.com
