The software industry is expanding as a result of increased demand for innovative solutions and continued digital transformation across industries. So, fundamentally sound software stocks GoDaddy Inc. (GDDY), Vimeo, Inc. (VMEO) and OppFi Inc. (OPFI), which have been showing solid momentum, could be great portfolio additions now.
According to Statista, software market revenue is expected to hit $698.80 billion this year. The sector’s revenue is expected to grow at a 5.3% CAGR to reach $858.10 billion by 2028.
Software companies experience strong revenue growth due to increased corporate spending on cloud computing, digital transformation, big data analytics, and artificial intelligence, as well as the demand for innovative solutions and efficient collaboration tools.
In addition, the global edge AI software market is expected to reach $8.05 billion by 2027, growing at a CAGR of 35.9% due to real-time data processing demand and the adoption of edge computing technology. Edge AI software refers to the use of artificial intelligence algorithms on edge devices for faster and more efficient data processing.
Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 15.9% returns over the past six months.
Considering these conducive 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 forward Price/Cash Flow multiple of 16.70% is 26.2% lower than the industry average of 22.64.
GDDY’s trailing-12-month ROTA of 5.45% is significantly higher than the 0.48% industry average. Its trailing-12-month ROTC of 10.31% is 268.5% higher than the 2.80% 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 6.9% year-over-year to 4.55 billion for the year ending December 2024. Its EPS is expected to grow 63.3% year-over-year to $4.44 for the same period. The stock has gained 38.6% over the past year to close the last trading session at $104.70.
The stock is currently trading above its 100-day and 200-day moving averages of $86.12 and $80.08, respectively, indicating an uptrend.
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 #7 out of 42 stocks in the B-rated Software - Business industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for GDDY.
Vimeo, Inc. (VMEO)
VMEO provides video software solutions worldwide. The company offers video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
VMEO’s forward EV/Sales multiple of 0.82 is 56.4% lower than the industry average of 1.89.
VMEO’s trailing-12-month gross profit margin of 77.77% is 58.3% higher than the 49.13% industry average. Its trailing-12-month ROTA of 1.40% is 10.4% higher than the 1.27% industry average.
For the fiscal third quarter (ended September 30, 2023), VMEO’s revenue stood at $106.25 million. Its non-GAAP gross profit rose 1.8% year-over-year to $84.70 million. The company’s adjusted EBITDA increased 509.5% over the prior-year quarter to $12.80 million.
Also, its net earnings came in at $8.46 million, compared to a net loss of $21.42 million. The company’s EPS stood at $0.05, compared to a loss per share of $0.13 in the prior year’s quarter.
Street expects VMEO’s revenue to increase marginally year-over-year to $418.89 million for the year ending December 2024. The stock has gained 7.9% over the past three months to close the last trading session at $3.69. The stock is currently trading above its 100-day moving average of $3.65, indicating an uptrend.
VMEO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #3 out of 21 stocks in the A-rated Software – SAAS industry. It has an A grade for Value and a B for Quality. To see additional VMEO’s ratings for Growth, Momentum, Stability and Sentiment, click here.
OppFi Inc. (OPFI)
OPFI operates a financial technology platform that allows banks to offer lending products. Its platform facilitates OppLoans, an installment loan product; SalaryTap, a payroll deduction secured installment loan product; and OppFi Card, a credit card product.
OPFI’s forward non-GAAP P/E multiple of 9.32 is 9.1% lower than the industry average of 10.25. Its forward Price/Sales multiple of 0.16% is 94% lower than the industry average of 2.63.
OPFI’s trailing-12-month gross profit margin of 100% is 65.6% higher than the 60.37% industry average. Its trailing-12-month ROCE of 188.44% is significantly higher than the 11.72% industry average.
OPFI’s net revenue for the third quarter that ended September 30, 2023, rose 7.2% year-over-year to $133.17 million. Its adjusted EBITDA rose 149.8% over the prior-year quarter to $33.01 million. The company’s adjusted net income and EPS rose significantly over the prior year quarter to $13.78 million and $0.16, respectively.
OPFI’s revenue is expected to increase 9.3% year-over-year to $558.30 million for the year ending December 2024. Its EPS is expected to grow 35.1% year-over-year to $0.66 for the same period. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of OPFI gained 127.1% over the past six months to close the last trading session at $4.52. The stock is currently trading above its 100-day and 200-day moving averages of $3.13 and $2.61, respectively, indicating an uptrend.
It’s no surprise that OPFI has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth, Sentiment and Momentum and a B for Value and Quality. It is ranked #13 out of 134 stocks in the Software - Application industry.
Beyond what is stated above, we’ve also rated OPFI for Stability and Quality. Get all OPFI ratings here.
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GDDY shares were trading at $104.70 per share on Monday morning, up $0.16 (+0.15%). Year-to-date, GDDY has declined -1.38%, versus a 0.29% 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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