The increasing demand for digital solutions across various sectors has contributed significantly to the remarkable growth of the software industry, making it an attractive investment opportunity. In this context, I have highlighted three fundamentally strong software stocks, Akamai Technologies, Inc. (AKAM), Amdocs Limited (DOX), and CSG Systems International, Inc. (CSGS), which could be solid buys.
With the continuation of remote work setup and the current adoption of the hybrid work model, organizations have adopted digital solutions significantly. This trend has resulted in increased adoption of cloud-based solutions, growing demand for digital transformation, and increasing focus on cybersecurity across various sectors.
Driven by these factors, the global software market is expected to grow at a CAGR of 11.5% from 2023 to 2023, reaching a market volume of $1.40 trillion by 2030. In addition, the cloud computing market is projected to surpass around $2.32 trillion by 2032, registering a CAGR of 16% from 2023 to 2032.
Furthermore, with the increasing adoption of digitalization by businesses, the global business software market is expected to register a CAGR of 11.2%, reaching $987.61 billion by the next five years.
Given these growth projections, the software industry is expected to grow steadily in the upcoming years. Hence, it could be wise to upload AKAM, DOX, and CSGS to your portfolios for solid returns in the future.
Akamai Technologies, Inc. (AKAM)
AKAM provides cloud solutions and services for securing, delivering, and computing content, applications, and software through its worldwide network of servers.
On June 21, the company was recognized as a Leader in the IDC MarketScape: Worldwide Network Edge Security as a Service (NESaaS) 2023 Vendor Assessment. The analyst firm commended AKAM’s proven track record of delivering security without performance trade-offs through its mature application security portfolio.
Further, Pavel Gurvich, Senior Vice President and General Manager, Enterprise Security at AKAM, said that this recognition reflects “how enterprises can leverage Akamai's broad security portfolio to help them transition to a Zero Trust security architecture.”
On April 19, AKAM announced the acquisition of Neosec, an API detection and response platform based on data and behavioral analytics. With the rapidly growing API threat landscape, both companies’ combined API solutions are expected to extend AKAM’s visibility in a critical emerging category of API security for which customers actively seek support.
AKAM’s total revenue increased marginally year-over-year to $915.69 million in the fiscal first quarter (ended March 31, 2023). Net cash provided by operating activities grew 4.9% from the year-ago value to $233.49 million.
During the same period, its non-GAAP operating income and non-GAAP net income amounted to $263.84 million and 218.31 million, respectively. Also, its adjusted net income per share increased marginally year-over-year to $1.40.
The consensus EPS estimate of $1.41 for the second quarter (ending June 30, 2023) represents a 4.2% increase year-over-year. The consensus revenue estimate of $929.55 million for the current quarter indicates a 2.9% rise from the same period last year. The company has an excellent earnings surprise history, as it surpassed the EPS estimates in each of the trailing four quarters.
The stock has gained 17% over the past three months to close the last trading session at $89.35.
AKAM’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has a B grade for Value and Quality. Out of 50 stocks in the Software - Business industry, it is ranked #6. Click here to see the additional POWR Ratings for AKAM (Growth, Momentum, Stability, and Sentiment).
Amdocs Limited (DOX)
DOX is a provider of software and services to communications and media companies. Its offerings are based on a product and services mix, using technologies and methodologies such as 5G cloud, microservices, DevOps, open source, bimodal operations, SRE, and automation through standard IT tools, open application programming interfaces, and AI.
Recently, the company bagged the Media & Communications 2023 Microsoft Partner of the Year Award among top global Microsoft partners for demonstrating excellence in innovation and implementing customer solutions in the media and communications industry.
On June 26, DOX unveiled its industry-leading Network Inventory solution to provide its customers with advanced network and service automation capabilities. By utilizing AI/machine learning-driven automated actions, this solution allows the company to deliver and maintain service markets more efficiently. This move will improve DOX’s offering and might help attract new customers.
On May 11, DOX entered into a definitive agreement to acquire the service assurance business of TEOCO. The acquisition enables DOX to offer a complete service orchestration solution and improve its customer service quality. By bringing key assurance expertise in-house, DOX would be better positioned to provide end-to-end service orchestration and stay competitive in the market.
During the second quarter that ended March 31, 2023, DOX’s revenue increased 6.8% year-over-year to $1.22 billion. Its operating income from operations stood at $182.28 million, up 11.4% from the prior year’s quarter.
Also, the company’s non-GAAP attributable net income and EPS amounted to $178.59 million and $1.47, respectively, in the same period. In addition, its free cash flow improved 113.3% year-over-year to $259.36 million.
Street expects DOX's EPS to increase 16.5% year-over-year in the third quarter (ending June 30, 2023) to $1.48. Its revenue for the ongoing quarter is expected to increase 6.5% year-over-year to $1.24 billion. Moreover, it topped the EPS and revenue estimates in three of the trailing quarters, which is promising.
Shares of DOX have gained 22.9% over the past nine months to close the last trading session at $96.64.
It is no surprise that DOX has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Stability, Sentiment, and Quality. In the same industry, it is ranked #7 of 50 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see the DOX ratings for Growth, Value, and Momentum here.
CSG Systems International, Inc. (CSGS)
CSGS is a global leader in providing customer engagement, revenue management, and payment solutions. The company offers integrated real-time revenue management platforms, leveraging the public cloud, private cloud, or on-premises deployments to optimize and monetize transactions at every customer lifecycle stage.
On June 22, PLDT expanded its 20-year partnership with CSGS to transform the customer experience for its enterprise business. By leveraging CSGS' innovative SaaS solution, PLDT can deliver consumer-like experiences that set new standards for excellence within the B2B realm. Further, this move should strengthen CSGS’ position in the market and attract new customers.
On February 22, CSGS announced the first deployment of its joint solution with Axiata Digital Labs (ADL) at Namibia’s leading mobile operator. Built on TM Forum Open API standards, the solution offers flexibility and scalability to support multiple Communications Service Provider (CSP) business models while simplifying operational complexities and reducing costs under one platform.
Ian Watterson, SVP and head of APAC at CSGS said, “With our joint solution, customers can take advantage of our cloud-based platform to create powerful partner ecosystems, deliver future-forward digital offerings and provide a customer experience that is second to none.”
CSGS' revenue increased 13% year-over-year to $289.74 million in the fiscal first quarter (ended March 31, 2023). Its non-GAAP operating income came in at $53.51 million, up 33.2% year-over-year.
The company’s non-GAAP net income grew 15.7% from the prior-year quarter to $31.77 million, while its non-GAAP EPS increased 20.9% from the year-ago value to $1.04. Its non-GAAP adjusted EBITDA also stood at $67.31 million, representing a 19.4% increase year-over-year.
Analysts expect CSGS’ revenue to increase 5.4% year-over-year to $256.70 million for the current quarter (ending June 30, 2023), while its EPS is expected to be $0.72 in the same period. Also, the company surpassed the revenue estimates in three of the trailing four quarters.
Over the past month, the stock has gained 7.4% to close its last trading session at $51.90.
CSGS' strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, and Quality. Within the same industry, it is ranked #5. To see the POWR Ratings of CSGS for Momentum and Sentiment, click here.
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AKAM shares were trading at $89.04 per share on Wednesday afternoon, down $0.31 (-0.35%). Year-to-date, AKAM has gained 5.62%, versus a 14.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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