The software market is rapidly expanding due to businesses across several industries undergoing digital transformation, growing adoption of emerging technologies, including artificial intelligence (AI), machine learning, the Internet of Things (IoT), blockchain, cloud computing, and big data analytics, and increasing frequency of cybersecurity concerns.
Therefore, investors could consider investing in the top software stocks SS&C Technologies Holdings, Inc. (SSNC), Sapiens International Corporation N.V. (SPNS), Karooooo Ltd. (KARO), and Rimini Street, Inc. (RMNI), which offer stability and boast lower valuation relative to their industry peers.
According to Gartner, worldwide IT spending is projected to reach $5 trillion in 2024, marking a 6.8% increase from 2023. IT services are expected to become the largest segment, with spending reaching $1.50 trillion this year, driven by organizational efficiency and optimization projects. Meanwhile, global software spending is projected to grow 12.7% year-over-year to $1.03 billion.
In addition, rising enterprise data volume, automation, and growing digitization are propelling the software market’s prospects. The pandemic has further fueled demand for software solutions, with increased remote work highlighting the importance of cybersecurity measures. The global software market is expected to grow at a CAGR of 11.5% by 2030.
Moreover, the application development software market is poised for growth due to increased demand for several software applications to simplify and speed up business operations using AI, IoT, and cloud-based solutions. The global application development software market is projected to grow at a CAGR of 24.3% by 2028.
Besides, the Biden-Harris Administration approved $20 million for digital connectivity projects in Pennsylvania, benefiting approximately 12,000 individuals annually. This funding is part of the U.S. Department of the Treasury’s Capital Projects Fund, aimed at expanding economic opportunities and providing internet connectivity in communities with unmet needs.
Considering these favorable market trends, let’s discuss the fundamentals of four software stock picks: SSNC, SPNS, KARO, and RMNI.
SS&C Technologies Holdings, Inc. (SSNC)
SSNC offers a comprehensive suite of software products and services tailored to the financial services and healthcare industries, enabling the automation of complex business processes. Their solutions range from securities accounting to healthcare administration, providing clients with tools to manage information processing efficiently.
On March 5, 2024, SSNC was selected by Circulate Capital for fund administration, reinforcing SSNC’s expertise in managing complex fund structures and supporting Circulate Capital’s mission of advancing the circular economy and combating climate change through impactful investments.
On February 15, SSNC approved a quarterly dividend payout of $0.24 per share, payable on March 15, 2024. The company pays $0.96 annually, which translates to a yield of 1.53% on the prevailing price level, higher than its four-year average dividend yield of 1.12%.
SSNC’s forward EV/EBITDA of 9.76x is 15.4% lower than the industry average of 11.53x. Likewise, the stock’s forward EV/EBIT multiple of 10.10 is 36.2% lower than the industry average of 15.83.
During the fourth quarter, which ended December 31, 2023, SSNC’s adjusted revenue grew 5.5% year-over-year to $1.41 billion. The company’s adjusted operating income and consolidated EBITDA attributable to SSNC increased 8.6% and 8.5% from a year-ago quarter to $545.20 million and $562.50 million, respectively. Moreover, its adjusted EPS rose 8.6% from the prior-year quarter to $1.26.
For the fiscal first quarter of 2024, the company expects its adjusted revenue to be between $1.40 billion and $1.44 billion. Its adjusted net income and EPS attributable to SSNC are projected to be in the range of $300.50 million to $316.50 million and $1.19 to $1.25, respectively.
For the fiscal year ending December 2024, Street expects SSNC’s revenue and EPS to grow 4.5% and 10.1% year-over-year to $5.75 billion and $5.08, respectively. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is notable.
SSNC’s shares have gained 13.5% over the past year and 13.2% over the past six months to close the last trading session at $62.70. Also, the stock has surged 1.2% intraday.
SSNC’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SSNC has a B grade for Growth, Value, Momentum, and Stability. Within the B-rated Software – Application industry, it is ranked #6 among 132 stocks.
To see SSNC’s additional POWR Ratings for Sentiment and Quality, click here.
Sapiens International Corporation N.V. (SPNS)
Based in Holon, Israel, SPNS specializes in providing insurance software solutions globally, covering property and casualty, life and pensions, and reinsurance sectors. Its offerings feature AI-powered software and digital engagement platforms aimed at helping insurers optimize operations and improve customer engagement.
On March 4, 2024, SPNS announced its strategic expansion in the Canadian insurance market, aiming to bolster support for existing clients and tap into new prospects. The move involves increasing the Ontario workforce with seasoned industry professionals and delivering innovative solutions to enhance operational efficiency and customer experience for Canadian insurers.
SPNS’ forward EV/EBITDA of 14.84x is lower than the industry average of 15.13x. Also, the stock’s forward EV/EBIT multiple of 15.64 is 22.5% lower than the industry average of 20.18.
In the fourth quarter that ended December 31, 2023, SPNS’ non-GAAP revenue surged 9.6% year-over-year to $130.91 million. Its non-GAAP operating income and net income attributable to SPNS’ shareholders grew 14.7% and 11.4% year-over-year to $24.15 million and $20.08 million, respectively. Also, its adjusted EBITDA rose 14.4% from a year-ago quarter to $25.27 million.
For the fiscal year 2024, the company projects non-GAAP revenue in the range of $550 million to $555 million, with a non-GAAP operating margin forecasted to be between 18.1% and 18.5%.
Analysts expect SPNS’ revenue to grow 7.2% and 11.2% year-over-year to $133.72 million and $0.34 for the fiscal first quarter ending March 2024, respectively. Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 56.5% over the past year and 17% over the past three months to close the last trading session at $30.51. Also, it has climbed 1.1% intraday. The stock has a 24-month beta of 0.99.
SPNS’ POWR Ratings reflect this optimistic outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Momentum, Stability, and Sentiment. In the B-rated Software – Business industry, it is ranked first of 44 stocks.
In addition to the POWR Ratings stated above, one can access SPNS’ additional Quality rating here.
Karooooo Ltd. (KARO)
Headquartered in Singapore, KARO offers a mobility software-as-a-service platform for connected vehicles globally, catering to various industries and regions. Its solutions include fleet management, risk management, last-mile delivery, and specialized mobility services, enhancing operational efficiency and safety for businesses and consumers alike.
On February 10, 2024, KARO announced a share repurchase program, allowing the repurchase of up to 10% of the company’s shares. The company plans to repurchase up to 1 million common stocks before the next Annual General Meeting. Shares repurchases enable the company to raise shareholder value.
KARO’s forward EV/EBITDA of 8.78x is 42% lower than the industry average of 15.13x. In addition, its forward EV/EBIT of 14.51 is 28.1% lower than the industry average of 20.18.
KARO’s revenue increased 16.1% from the previous year’s quarter to ZAR1.08 billion ($57.71 million) in the third quarter that ended November 30, 2023. The company’s operating profit and profit for the period grew 33.7% and 35.5% from a year-ago quarter to ZAR274.71 million ($14.68 million) and ZAR199.33 million ($10.65 million), respectively.
Furthermore, KARO’s adjusted EBITDA rose 28.3% year-over-year to ZAR427.87 million ($22.86 million).
For the fiscal year 2024, the company projects the number of subscribers to be in the range between 1.90 million and 2.10 million, and Cartrack’s subscription revenue is anticipated to fall between ZAR3.40 billion ($181.64 million) and ZAR3.60 billion ($192.33 million).
Street expects KARO’s revenue and EPS to grow 7.1% and 15.8% year-over-year to $235.65 million and $1.41 for the fiscal year ending February 2025, respectively. The stock has surged 12.5% over the past six months to close the last trading session at $26.
KARO’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
KARO has an A grade for Stability, Sentiment, and Quality and a B for Value. Within the Software - Application industry, it is ranked #2.
Click here to see KARO’s additional POWR Ratings for Growth and Momentum.
Rimini Street, Inc. (RMNI)
RMNI specializes in providing enterprise software support services for Oracle and SAP products to Fortune 500 and Fortune Global 100 companies. The company’s solutions encompass mission-critical support, managed services, security solutions, and professional services.
On February 27, 2024, RMNI launched Rimini Custom™, extending its acclaimed support services to a broader array of enterprise software products and releases, catering to organizations seeking to maintain operational stability while driving innovation. This expansion allows clients to leverage RMNI's expertise and support excellence to maximize the value of their software investments.
RMNI’s forward EV/Sales of 0.54x is 81.3% lower than the industry average of 2.91x. Likewise, the stock’s forward EV/EBIT multiple of 3.95 is 73.9% lower than the industry average of 15.13.
During the fourth quarter, which ended December 31, 2023, RMNI’s revenue grew 3.2% from a year-ago quarter to $112.11 million. The company's non-GAAP operating and net income increased 28.6% and 11.7% from the prior-year quarter to $19.31 million and $17.12 million, respectively. In addition, its adjusted EBITDA rose 16.3% year-over-year to $21.33 million.
Analysts expect RMNI’s revenue and EPS to grow 1.1% and 53.5% year-over-year to $436.18 million and $0.45 for the fiscal year ending December 2024, respectively. In addition, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 35.1% over the past six months to close the last trading session at $3.12. Also, it has gained 1.3% intraday.
RMNI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Stability and Quality. In the Software - Application industry, it is ranked #4.
For more ratings on RMNI’s Growth, Momentum, and Sentiment, click here.
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SSNC shares were trading at $62.80 per share on Tuesday morning, up $0.10 (+0.16%). Year-to-date, SSNC has gained 3.16%, versus a 8.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
4 Software Stock Buys for Stability and Value StockNews.com
