The software industry is fueled by increasing demand for IoT solutions and the growing adoption of AI in most industries. Given the industry’s steady growth prospects, investors could consider quality software stocks Park City Group, Inc. (PCYG), DocuSign, Inc. (DOCU), and MiX Telematics Ltd. ADR (MIXT) in September. Our proprietary rating system rated these stocks a B (Buy).
Considering the advancement in technology globally, many businesses in multiple sectors have adopted innovative solutions to bolster their operations.
According to Gartner’s projections, global software spending is expected to experience a year-on-year growth of 13.7% in 2023, reaching a total of $922.75 billion. Furthermore, the forecast for 2024 suggests that global software spending will surge to $1.05 trillion, reflecting a 14.1% year-over-year increase.
Artificial Intelligence (AI) has changed the landscape for many industries across the globe. Increasing demand for enhanced business IoT solutions, autonomous vehicles, and robotics is poised to fuel the expansion of the artificial intelligence software market.
The AI software market is expected to reach approximately $1.09 trillion by 2032, at a projected CAGR of 23%.
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 is projected to grow from $273.55 billion in 2023 to $908.21 billion by 2030, exhibiting an 18.7% CAGR.
Considering these conducive trends, let's take a look at the fundamentals of the three best Software - SAAS stocks, starting with number 3.
Stock #3: Park City Group, Inc. (PCYG)
PCYG is a software-as-a-service provider that designs, develops, and markets proprietary software products in North America.
PCYG’s trailing-12-month EBIT margin of 26.70% is 496.1% higher than the 4.48% industry average. Its trailing-12-month net income margin of 28.13% is significantly higher than the 2.03% industry average.
PCYG pays $0.06 annually as dividends. This translates to a yield of 0.69% at the current market price, compared to the four-year average dividend yield of 0.11%.
For the fiscal third quarter that ended March 31, 2023, PCYG’s revenue increased 5.9% year-over-year to $4.82 million. Its net income and net income per share grew 52.8% and 60% from the prior year’s period to $1.66 million and $0.08, respectively.
Street expects PCYG’s EPS for the fourth quarter (ended June 30, 2023) to increase 22.6% year-over-year to $0.07. Its revenue is expected to increase 3.8% year-over-year to $4.78 million for the same quarter. The company has surpassed consensus revenue and EPS estimates in each of its trailing four quarters, which is impressive.
The stock has gained 75.2% year-to-date to close the last trading session at $8.67.
PCYG’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates 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 in Quality and a B in Sentiment. It is ranked #5 out of 24 stocks in the B-rated Software - SAAS industry.
Beyond what is stated above, we’ve also rated PCYG for Value, Momentum, Growth, and Stability. Get all PCYG ratings here.
Stock #2: DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions in the United States and internationally. The company offers DocuSign e-signature solution that enables the sending and signing of agreements on various devices.
On July 25, 2023, DOCU launched a new feature called Liveness Detection for ID Verification as part of its identity verification offerings. This feature employs AI-based biometric checks to confirm the identity of signers, their physical presence during signing, and the validity of their IDs.
Developed in partnership with Onfido, this feature integrates seamlessly with DocuSign’s eSignature workflow, making secure agreements easier without the need for multiple platforms.
DOCU’s trailing-12-month 79.27% trailing-12-month gross profit margin is 65.5% higher than the 47.89% industry average. Its levered FCF margin of 30.55% is 335% higher than the 7.02% industry average.
DOCU’s total revenues rose 12.3% year-over-year to $661.39 million in the first quarter that ended April 30, 2023. Its non-GAAP income from operations increased 72% year-over-year to $175.77 million. Additionally, its non-GAAP net income rose 94% year-over-year to $150.21 million. The company’s non-GAAP EPS came in at $0.72, representing an increase of 89.5% year-over-year.
Analysts expect DOCU’s EPS and revenues to increase 49.2% and 8.9% year-over-year to $0.66 and $677.42 million, respectively, in the fiscal second quarter that ended July 31, 2023. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 7% to close the last trading session at $51.67.
DOCU’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade in Growth and a B in Quality and Value. Within the same industry, it is ranked #4.
Click here to see the other ratings of DOCU (Momentum, Sentiment, and Stability).
Stock #1: MiX Telematics Ltd. ADR (MIXT)
MIXT provides fleet and mobile asset management solutions through software-as-a-service (SaaS) delivery model.
On August 2, MIXT announced a quarterly dividend of $0.06, payable on September 7, 2023. MIXT pays $0.23 annually as dividends. This translates to a yield of 3.46% at the current market price, compared to the 4-year average dividend yield of 2.55%.
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.
MIXT’s trailing-12-month EBITDA margin of 21.34% is 136.1% higher than the 9.04% industry average. Its trailing-12-month net income margin of 3.73% is 83.3% higher than the 2.03% industry average.
In the fiscal first quarter (ended June 30, 2023), MIXT’s total revenue increased 4% year-over-year to $36.35 million, while its adjusted EBITDA increased 44.3% year-over-year to $8.66 million. The company’s adjusted net income increased 47.8% year-over-year to $2.76 million. Also, its adjusted net income per ordinary share increased 66.7% year-over-year to $0.005.
MIXT’s revenue is expected to increase 2.9% year-over-year to $36.12 million for the second quarter (ending September 30, 2023). Its EPS is expected to increase 333.7% year-over-year to $0.13 in the same quarter.
MIXT’s shares have gained 6.8% over the past month and to close the last trading session at $6.98.
It’s no surprise that MIXT has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B in Growth. Within the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have MIXT’s ratings for Quality, Sentiment, Stability, and Momentum. Get all MIXT ratings here.
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DOCU shares were trading at $51.67 per share on Monday morning, up $1.37 (+2.72%). Year-to-date, DOCU has declined -6.77%, versus a 18.87% 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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