The software growth stocks rally seems to be fizzling amid lingering inflation and fears of higher interest rates. On the other hand, consistent digital transformation within the software market has exhibited remarkable growth so far. Therefore, if you have $300, let’s evaluate fundamentally sound software stocks, Salesforce, Inc. (CRM) and Xperi Inc. (XPER), to garner substantial long-term returns.
Stocks have struggled to maintain their momentum in February after a strong start to the year, as reports have shown inflation and the overall economy is exhibiting more resilience than expected. While the strong economic data calm fears that a recession may be imminent, they also have forced Wall Street to raise its forecasts for the Federal Reserve’s path in interest rate hikes.
The heightened conjecture for higher rates is most evident in the bond market, where yields have spiked in recent weeks. On Wednesday, the 10-year Treasury yield rose above 4%, marking a fresh acceleration for a historic bond-market rout.
On the bright side, software companies offer significant revenue growth in the technology sector. Increased corporate spending on cloud computing, digital transformation, big data analytics, and artificial intelligence are expected to drive growth for software companies.
The sector is also expected to remain buoyed by robust spending. Gartner, Inc. (IT) forecasts the software segment’s global spending to rise 9.3% in 2023 to reach more than $850 billion.
The software market’s revenues are projected to reach $650.70 billion in 2023. Also, the global software products market is projected to grow to $2.36 trillion in 2027, growing at a CAGR of 12%.
Given the industry’s promising growth prospects, fundamentally sound software stocks CRM and XPER could be ideal buys for the long run. Considering these companies' impressive financial performance and solid growth prospects, they could be attractive investment opportunities.
Salesforce, Inc. (CRM)
CRM offers a customer relationship management platform that binds companies and customers globally. Its Customer 360 platform delivers a source that connects customer data across systems, applications, and devices to help companies sell, service, market, and conduct commerce from anywhere.
CRM’s revenue and total assets grew at CAGRs of 24.1% and 21.5% over the past three years. Likewise, its levered FCF grew at a CAGR of 22.7% during the same period.
In terms of the trailing-12-month gross profit margin, CRM’s 72.69% is 47.8% higher than the 49.18% industry average. Likewise, its 30.62% trailing-12-month levered FCF Margin is 333.1% higher than the industry average of 7.07%.
For the fiscal fourth quarter that ended on January 31, 2023, CRM’s total revenues increased 14.4% year-over-year to $8.38 billion. Its gross profit grew 18.3% from its year-ago value to $6.28 billion, while its non-GAAP income from operations improved 123.3% from its prior-year quarter to $2.45 billion.
In addition, its non-GAAP net income and adjusted net income per share came in at $1.66 billion and $1.68, up 96.4% and 100% year-over-year, respectively.
The consensus EPS estimate of $1.58 for the first quarter (ending April 2023) represents a 61.3% improvement year-over-year. The consensus revenue estimate of $8.17 billion for the current quarter indicates a 10.2% increase year-over-year. The company has an excellent earnings surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 13.8% over the past three months and 26.2% year-to-date to close the last trading session at $186.59.
CRM’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating 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 has an A grade for Growth and Sentiment. Out of 197 stocks in the Software - Application industry, it is ranked #26. To see the other ratings of CRM for Value, Momentum, Stability, and Quality, click here.
Xperi Inc. (XPER)
Software and services provider XPER offers consumers a seamless end-to-end entertainment experience, from choice to consumption, in the home, in the car, and on the go. The company has three business categories: Pay- TV, Consumer Electronics; Connected Car; and Media Platform.
On January 4, XPER entered into a partnership with LG Electronics to integrate DTS:X, its immersive audio technology, into LG’s latest OLED and Premium LCD TVs. This new line of LG TVs is expected to deliver a cinematic experience to consumers while transforming their listening experience.
“DTS is enabling a new level of audio experience, bringing the quality sound consumers expect in a theater to the home, to help transform the listening experience of LG TV users.”, said Jea Yoo, president of Korea at XPER.
XPER’s total revenue increased 8.6% year-over-year to $135.53 million for the fourth quarter that ended on December 31, 2022. Its total current assets came in at $332.26 million for the period that ended December 31, 2022, up 19.9% compared to $277.14 million for the period that ended December 31, 2021.
In terms of forward EV/Sales, XPER is trading at 0.78x, 72.4% lower than the industry average of 2.83x. Likewise, its forward Price/Sales multiple of 0.94x is 65.4% lower than the industry average of 2.71x.
For the quarter ending June 2023, Street expects XPER’s revenue to increase 2.5% year-over-year to $129.35 million. Its EPS is expected to increase by 15% per annum over the next five years.
Moreover, its revenue and tang book value grew at CAGRs of 36.4% and 14%, respectively, over the past three years. The stock has gained 14% over the past three months and 38.1% year-to-date to close the last trading session at $11.89.
XPER POWR Ratings reflect this promising outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The stock has a B grade for Growth, Sentiment, and Quality. Within the Software - Application industry, it is ranked #3.
Click here to view the other ratings of XPER for Value, Momentum, and Stability.
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CRM shares were unchanged in premarket trading Friday. Year-to-date, CRM has gained 40.73%, versus a 4.02% 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.
Got $300? 2 Software Stocks to Buy for the Long Term StockNews.com
