Increasing digitalization and advancements in the cloud are expected to drive growth in the software industry. Given the rosy prospects of the sector, investors could consider quality software stocks Manhattan Associates, Inc. (MANH), PDF Solutions, Inc. (PDFS), and MarketWise, Inc. (MKTW).
A surge in the volume of enterprise data, rising automation of business processes, and growing digitization are the major drivers of the software market. Moreover, increasing network security and privacy concerns support the industry's growth.
As a result, the global software market is expected to grow at a CAGR of 11.5% until 2030.
In addition, the Software-as-a-Service (SaaS) model is becoming increasingly popular both for private users and companies looking for ways to account for increasingly complex and costly integrated application environments while also shrinking implementation cycles.
This development is expected to drive the demand for enterprise software, and the corresponding segment is the market’s largest segment in terms of revenue shares. It is estimated that more than 50% of enterprise software application usage will be via cloud-based software deployment by 2025.
Considering these conducive trends, let's take a look at the fundamentals of the three best Software - Application stocks, starting with number 3.
Stock #3: Manhattan Associates, Inc. (MANH)
MANH develops, sells, deploys, services, and maintains software solutions to manage supply chains, inventory, and omni-channel operations.
On August 22, 2023, MANH announced PacSun, a leading specialty retailer of emerging youth brands and trending fashion, has selected Manhattan Active® Point of Sale to enhance its omnichannel sales strategy and deliver a seamless, unified customer shopping experience.
MANH’s trailing-12-month gross profit margin of 53.01% is 10.7% higher than the 47.89% industry average. Its trailing-12-month asset turnover ratio of 1.63x is 164.2% higher than the 0.62x industry average.
MANH’s total revenue increased 20.4% year-over-year to $231.02 million in the fiscal second quarter that ended June 30, 2023. Its adjusted net income increased 24.8% year-over-year to $54.64 million. The company’s adjusted EPS increased 27.5% year-over-year to $0.88.
Street expects MANH’s revenue to increase 14.2% year-over-year to $226.27 million in the fiscal third quarter ending September 2023. Its EPS for the same quarter is expected to increase 15.8% year-over-year to $0.76. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters, which is remarkable.
Over the past nine months, the stock has gained 65.6% to close the last trading session at $201.02.
MANH’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.
The stock has an A grade for Quality and a B in Sentiment. It is ranked #31 in the 135-stock in the Software - Application industry.
To access MANH’s additional ratings for Growth, Value, Stability, and Momentum, click here.
Stock #2: PDF Solutions, Inc. (PDFS)
PDFS provides proprietary software and physical intellectual property products for integrated circuit designs, electrical measurement hardware tools, proven methodologies, and professional services in the United States, China, Japan, and internationally.
On September 5, 2023, PDFS announced the launch of a freemium entry point for its Exensio Analytics Platform, providing users with a new way to start using and experience the market-leading analytics platform.
PDFS’s trailing-12-month gross profit margin of 70.13% is 46.4% higher than the 47.89% industry average. Its trailing-12-month net income margin of 5.57% is 173.7% higher than the 2.03x industry average.
PDFS’s total revenues for the fiscal second quarter ended June 30, 2023, increased 20% year to $41.60 million. The company’s non-GAAP gross profit increased 28.9% year-over-year to $30.72 million. Additionally, its non-GAAP net income per common share increased 72.7% year-over-year to $0.19.
Analysts expect PDFS’s revenue to increase 3.3% year-over-year to $41.17 million for the fiscal third quarter ending September 2023. Its EPS is expected to be $0.15 for the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters.
PDFS’s shares have gained 41% over the past year to close the last trading session at $34.95.
PDFS’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B in Growth. It is ranked #25 in the same industry.
Beyond what is stated above, we’ve also rated for Value, Stability, Quality, and Momentum. Get all PDFS ratings here.
Stock #3: MarketWise, Inc. (MKTW)
MKTW operates a content and technology multi-brand platform for self-directed investors in the United States and Internationally. Its platform includes subscription businesses that provides financial research, software, education, and tools to navigate the financial markets.
MKTW’s trailing-12-month net income margin of 5.57% is 173.7% higher than the 2.03% industry average. Its trailing-12-month gross profit margin of 70.13% is 46.4% higher than the 47.89% industry average.
MKTW’s total net revenue came in at $103.64 million in the fiscal second quarter that ended June 30, 2023. Its income from operations came to $8.92 million. The company’s net income came to $9.74 million, and its total operating expenses decreased 9.5% year-over-year to $94.73 million.
MKTW’s revenue is expected to be $104.80 million in the fiscal third quarter ended September 2023. Furthermore, the company surpassed its consensus revenue estimates in three of the trailing four quarters.
The stock has plunged marginally over the past five days to close the last trading session at $1.42.
MKTW’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.
MKTW has an A grade for Value and a B in Quality. It is ranked #16 in the same industry.
Click here to see the additional POWR Ratings for NKTW (Momentum, Growth, Sentiment, and Stability).
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MANH shares were trading at $199.42 per share on Thursday morning, down $1.60 (-0.80%). Year-to-date, MANH has gained 64.27%, versus a 17.06% 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.
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