Despite ongoing economic turbulence, the software industry is well-positioned to witness robust growth and expansion in the foreseeable years, thanks to the growing demand for software solutions among enterprises. The demand for business software and services is driven by increased automation and streamlining of business processes across several end-use industries.
As the industry is poised for solid long-term growth, it could be wise to invest in fundamentally sound software stocks The Sage Group plc (SGPYY), Informatica Inc. (INFA), and MiX Telematics Limited (MIXT) for solid returns.
The COVID-19 pandemic sped up digital transformation and technologies by several years. Small and large enterprises were forced to quickly reorganize working processes and accelerate their IT priorities. They realized they must move toward a primarily digital world, where software solutions would mainly determine the way of life.
Enterprises increasingly integrate advanced technology into their daily operations to drive efficiency and lower costs. Technology can improve efficiency by speeding up processes, automating repetitive tasks, reducing errors, providing instant access to information, and streamlining collaboration. More than two-thirds of businesses plan to spend more on technology and software in 2023.
Moreover, over 57% of businesses are early adopters of emerging technologies. Innovations in artificial intelligence (AI), blockchain, machine learning (ML), metaverse, quantum computing, Internet of Things (IoT), extended reality, and other cutting-edge technologies will continue to gain traction this year as enterprises can leverage these new technologies to gain a competitive edge.
According to the forecast by Gartner, worldwide software spending is expected to increase 12.3% year-over-year to $891.39 billion. Meanwhile, the global business software and services market size is projected to reach $1.15 trillion by 2030, growing at a CAGR of 11.9%.
Moreover, Software-as-a-Service (SaaS) solutions are among the fastest-growing segments in the software industry. A significant surge in the adoption of public & hybrid cloud-based services primarily contributes to the SaaS market growth.
In addition, the integration of AI and ML with SaaS solutions to enhance operational proficiency and intelligence across businesses should propel expansion for the SaaS market. As per a report by Fortune Business Insights, the global SaaS market size is projected to grow from $273.55 billion in 2023 to $908.21 billion by 2030, exhibiting an 18.7% CAGR during the forecast period.
Given the industry’s bright growth prospects, software stocks SGPYY, INFA, and MIXT could be solid additions to one’s portfolio.
Let’s discuss the fundamentals of these stocks in detail.
The Sage Group plc (SGPYY)
Headquartered in Newcastle upon Tyne, the United Kingdom, SGPYY offers technology solutions and services for small and mid-sized businesses (SMBs) in North America, Northern Europe, and internationally. It provides cloud-native solutions, such as Sage Intacct, Sage People, Sage 200, Sage X3, Sage Accounting, Sage Payroll, Sage HR, Sage 50cloud, and Sage 200cloud.
On July 5, SGPYY announced an expanded relationship with Amazon Web Services (AWS), aimed at helping SMBs speed up their digital transformation and benefit from the latest technology. This announcement marks first-time availability on AWS in the U.S. for customers of the accounting software Sage Intacct.
This move also enhances existing AWS availability in AWS Canada (Central) Region, AWS Australia (Sydney) Region, and AWS Europe (Ireland) Region. This extended partnership should bode well for SGPYY.
On May 9, SGPYY acquired Corecon, a cloud-native preconstruction and project management solution company. This acquisition is expected to boost SGPYY’s customer relationships and strengthen its position as a leading provider of cloud-native technology in the construction industry.
Also, on April 5, SGPYY launched Sage Intacct on Microsoft Azure in the U.S. This release was followed by the debut of Sage Active on Microsoft Azure in France, demonstrating SGPYY’s commitment to providing scalable solutions to SMBs worldwide.
For the six months that ended March 31, 2023, SGPYY’s underlying total revenue increased 16.3% year-over-year to £1.09 billion ($1.21 billion). Its underlying gross profit rose 16.6% from the year-ago value to £1.01 billion ($1.12 billion). Also, its underlying operating profit increased 24% year-over-year to £227 million ($252.79 million).
Furthermore, SGPYY’s EBITDA was £275 million ($306.24 million), up 13.2% year-over-year. The company’s underlying profit for the period and EPS rose 24% from the prior-year quarter to £160 million ($178.17 million) and 15.49p, respectively.
Analysts expect SGPYY’s revenue for the fiscal year (ending September 2023) to increase 21.9% year-over-year to $2.83 billion. Likewise, the consensus revenue estimate of $3.05 billion for the fiscal year 2024 indicates a 7.8% rise year-over-year.
Shares of SGPYY have gained 27% over the past six months and 45% over the past year to close the last trading session at $48.35.
SGPYY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SGPYY has a B grade for Stability and Quality. It is ranked first among 26 stocks in the B-rated Software - SAAS industry.
Click here to access additional POWR Ratings of SGPYY for Growth, Value, Momentum, and Sentiment.
Informatica Inc. (INFA)
INFA develops an AI-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale in the U.S. The company’s platform comprises a suite of interoperable data management products and API and application integration products.
On June 28, INFA launched four new product capabilities to bring enhanced speed and performance to data integration and replication for customers in the Snowflake ecosystem: Informatica Superpipe for Snowflake, Enterprise Data Integrator Snowflake native application, Cloud Data Integration-Free for Snowflake, and support for Apache Iceberg on Snowflake.
This launch for the Snowflake ecosystem might boost INFA’s revenue stream and growth.
On June 20, INFA announced the availability of its 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. The expansion of this cloud footprint further extends the years-long partnership between INFA and AWS.
On May 23, INFA announced its plans to enhance collaboration with Microsoft to seamlessly integrate INFA’s Intelligent Data Management Cloud (IDMC), which utilizes generative AI technology, with Microsoft Fabric.
Jitesh Ghai, Chief Product Officer at INFA, commented, “The Informatica IDMC-Microsoft Fabric integration offers frictionless delivery of our trusted data management capabilities and provides Azure customers confidence that their data is of the highest quality to power their tier-one business objectives.”
INFA’s total revenues grew marginally year-over-year to $365.40 million, while its subscription revenues increased 8% year-over-year to $213.90 million in the first quarter that ended March 31, 2023. The company’s non-GAAP income from operations rose 1.7% year-over-year to $84.81 million. Its adjusted free cash flow (after-tax) grew 20.4% from the year-ago value to $88.87 million.
Analysts expect INFA’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 8.5% and 13.5% year-over-year to $403.49 million and $0.20, respectively. Moreover, the company surpassed the EPS estimates in three of the trailing four quarters.
Furthermore, the company’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 7.2% and 19.2% from the prior year to $1.69 billion and $0.92, respectively.
Over the past six months, the stock has gained 10.3% and 21.1% year-to-date to close the last trading session at $18.69.
INFA’s POWR Ratings reflect this strong outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
INFA has a B grade for Stability and Quality. Within the same industry, it is ranked #2.
Beyond what we stated above, we also have INFA’s ratings for Sentiment, Growth, Value, and Momentum. Get all INFA ratings here.
MiX Telematics Limited (MIXT)
MIXT provides fleet and mobile asset management solutions via a software-as-a-service (SaaS) delivery model. Its solutions include MiX Fleet Manager, MiX Vision, MiX Rovi, MiX Journey Management, MiX Hours of Service, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
On May 26, MIXT announced that the business had accumulated more than one million active subscribers across its combined fleet and consumer customer base. MIXT has customers in more than 120 countries globally. This significant milestone of a million active subscribers comes from continued subscriber growth throughout the financial year that ended March 31, 2023.
During the fourth quarter of fiscal 2023, MIXT’s total revenue increased 2.2% year-over-year to $36.90 million, and its subscription revenue grew 3.8% from the year-ago value to $32.50 million. Its adjusted EBITDA was $9.20 million, compared to $8.20 million for the fourth quarter of 2022.
In addition, the company’s adjusted income increased 30.4% from the previous year’s quarter to $3 million, while its adjusted net income per ADS was $0.13, compared to $0.10 in the fourth quarter of fiscal 2022. Its free cash flow came in at $3.40 million versus the negative free cash flow of $2.50 million incurred in the fourth quarter of 2022.
The consensus revenue estimate of $149.55 billion for the fiscal year (ending March 2024) reflects a 6.2% year-over-year improvement. Likewise, the consensus EPS estimate of $0.59 for the ongoing year indicates a 62.5% rise year-over-year.
In addition, analysts expect MIXT’s revenue and EPS for the fiscal year 2025 to grow 3.4% and 18% year-over-year to $154.70 million and $0.69, respectively. MIXT’s stock has declined 7% over the past month to close the last trading session at $6.25.
MIXT’s POWR Ratings reflect promising prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
MIXT has a B grade for Value and Quality. Also, it is ranked #3 of 26 stocks in the Software-SAAS industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MIXT’s ratings for Stability, Value, Sentiment, and Momentum here.
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SGPYY shares were unchanged in premarket trading Friday. Year-to-date, SGPYY has gained 37.24%, versus a 19.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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