Despite macroeconomic uncertainties, the software industry’s prospects look bright due to continued digital transformation and the increasing inclination toward innovative technologies like generative AI. Given this backdrop, it could be wise to own fundamentally strong software stocks GoDaddy Inc. (GDDY), Agilysys, Inc. (AGYS) and OppFi Inc. (OPFI).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
According to Gartner, global software spending will reach $1.04 trillion in 2024, a rise of 13.8% year-over-year. The increased need for cloud-based software solutions and digital transformation initiatives across industries should drive this growth. Also, the increasing application of machine learning and AI technologies will likely brighten the industry’s prospects.
The software market in the U.S. is predicted to grow at a 4.2% CAGR until 2028, resulting in a market volume of $414.70 billion. Enterprise Software is expected to be the market leader, with a forecast market volume of $139.20 billion in 2023.
Moreover, investor’s interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 22.3% returns over the past six months.
In light of these encouraging trends, let’s look at the fundamentals of the three software stocks.
GoDaddy Inc. (GDDY)
GDDY designs and develops cloud-based products and operates through two segments: Applications and Commerce and Core Platform. It offers applications products, including Websites + Marketing, a mobile-optimized online tool that enables customers to build websites and e-commerce-enabled online stores.
GDDY’s trailing-12-month ROTA of 5.45% is significantly higher than the 0.09% industry average. Its trailing-12-month ROTC of 10.31% is 308.3% higher than the 2.53% industry average.
For the fiscal third quarter ended September 30, 2023, GDDY’s total revenue amounted to $1.07 billion, up 3.5% year-over-year. Its net income and EPS rose 31% and 41.3% over the prior-year quarter to $130.70 million and $0.89, respectively.
Also, its non-GAAP unlevered free cash flow increased 7.9% from the year-ago quarter to $320.10 million, and its non-GAAP normalized EBITDA grew 12.7% year-over-year to $296 million.
Analysts expect GDDY’s revenue to increase 4.1% year-over-year to 4.26 billion for the year ending December 2023. Its EPS is expected to grow 23.8% year-over-year to $2.71 for the same period. Shares of GDDY have gained 31.8% over the past three months to close the last trading session at $92.11.
GDDY’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 assess stocks by 118 different factors, each with its own weighting.
GDDY also has a B grade for Growth, Sentiment and Quality. It is ranked #8 out of 45 stocks in the B-rated Software - Business industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for GDDY.
Agilysys, Inc. (AGYS)
AGYS and its subsidiaries provide hardware and software solutions for the hospitality industry, including point of sale, property management, inventory, payments, and reservations management, aimed at enhancing the guest experience.
On October 10, 2023, AGYS highlighted technology flexibility at the Global Gaming Expo (G2E) 2023, allowing establishments to customize solutions to their preferences, potentially enhancing operational efficiency and customer satisfaction in the hospitality industry.
AGYS’ trailing-12-month ROCE of 10.95% is significantly higher than the 0.80% industry average. Its trailing-12-month ROTA of 5.51% is significantly higher than the 0.09% industry average.
AGYS’ total net revenue for the second quarter ended September 30, 2023, increased 22.8% year-over-year to $58.62 million. Its operating income rose 21.7% from the prior-year quarter to $3.56 million. In addition, its adjusted EPS came in at $0.25, representing an increase of 4.2% year-over-year. Also, its adjusted EBITDA rose 8.9% year-over-year to $8.05 million.
Street expects AGYS’ revenue to increase 19.7% year-over-year to $237.06 million for the year ending March 2024. Its EPS is expected to be $0.97 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 31.9% to close the last trading session at $89.20.
AGYS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Sentiment and a B for Growth and Quality. It is ranked #14 in the Software - Business industry.
Beyond what is stated above, we’ve also rated AGYS for Momentum, Value and Stability. Get all AGYS ratings here.
OppFi Inc. (OPFI)
OPFI runs a technology platform that helps banks provide different types of loans. The company’s products include OppLoans, which are installment loans; SalaryTap, which are loans deducted from the paycheck; and the OppFi Card, a credit card.
OPFI’s trailing-12-month ROCE of 188.44% is significantly higher than the 11.66% industry average. Its trailing-12-month asset turnover ratio of 0.36x is 69% higher than the 0.21x industry average.
During the fiscal third quarter that ended September 30, 2023, OPFI’s total revenue rose 7.2% year over year to $133.17 million. Its adjusted EBITDA rose 149.8% year-over-year to $33.01 million. Moreover, the company’s adjusted net income and EPS rose significantly year-over-year to $13.78 million and $0.16, respectively.
The consensus revenue estimate of $510.76 million for the year ending March 2024 represents a 12.8% increase year-over-year. Its EPS is expected to grow at 705.6% year-over-year to $0.48 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 58.1% year-to-date to close the last trading session at $3.24.
OPFI’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #6 out of 131 stocks in the Software - Application industry. It has an A grade for Sentiment and Growth and a B for Value, Momentum and Quality. To see additional OPFI ratings for Stability, 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.
GDDY shares were trading at $92.15 per share on Monday morning, up $0.04 (+0.04%). Year-to-date, GDDY has gained 23.16%, versus a 19.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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