With the growing reliance of businesses on cloud platforms for efficiency, automation, and scalability, demand for SaaS is expected to grow exponentially. In this piece, I evaluated two software stocks, Palantir Technologies Inc. (PLTR) and The Sage Group plc (SGPYY), to determine a better buy now.
PLTR constructs software platforms for the U.S. intelligence community to assist in counterterrorism investigations and operations, while SGPYY, based in the United Kingdom, provides technology solutions for global small and medium businesses.
Organizations are increasingly embracing hybrid and public cloud solutions on a large scale, aiming to enhance their overall business performance. In addition, they are actively seeking centralized data-driven analytics capabilities to facilitate informed decision-making processes.
Within the realm of cloud computing, SaaS stands out as the largest segment, serving as the standard delivery model for numerous enterprise applications. The appeal of SaaS solutions lies in their reliability, accessibility, and cost-effectiveness, making them highly attractive to many companies.
Moreover, SaaS solutions offer a centralized platform that connects users to cloud-based services, enabling swift application deployment while minimizing the time spent on laborious startup and maintenance tasks.
According to a report by Fortune Business Insights, the global SaaS market is expected to reach $908.21 billion by 2030, growing at a CAGR of 18.7%. The industry’s tailwinds should bode well for PLTR and SGPYY.
In terms of price performance, PLTR is a clear winner with 95.1% gains over the past three months compared to SGPYY’s 22.6% gain. Moreover, PLTR has gained 140.5% over the past six months, while SGPYY climbed 27.4%. Also, PLTR has surged 160.8% year-to-date compared to SGPYY’s 35.3% gain.
But which stock is a better buy now? Let’s find out.
Recent Developments
On June 6, PLTR unveiled the introduction of Palantir Foundry for Manufacturing on Amazon Web Services (AWS). This comprehensive solution empowers manufacturers to integrate and contextualize their data assets, driving transformative industrial operations. PLTR would benefit from increased demand for its data-driven approach, resulting in a potential revenue boost and market expansion.
On May 9, SGPYY solidified its position as a top cloud-native technology provider for the construction industry by acquiring Corecon, a cloud-native preconstruction and project management solution. The strategic move expands the company’s customer relationships and enhances its capabilities in efficiently managing projects from bidding to completion.
Recent Financial Results
For the first quarter that ended March 31, 2023, PLTR’s adjusted income from operations rose 6.6% year-over-year to $125.11 million. Its adjusted EBITDA grew 9.6% from the year-ago value to $133.43 million. In addition, adjusted net income attributable to common shareholders and adjusted EPS came in at $107.40 million and $0.05, up 140.2% and 150% year-over-year, respectively.
However, as of March 31, 2023, the company’s cash and cash equivalents stood at $1.26 billion, compared to $2.60 billion as of December 31, 2022.
For the six months that ended March 31, 2023, SGPYY’s adjusted revenue increased 16.4% year-over-year to £1.09 billion ($1.42 billion). Its adjusted gross profit grew 16.7% from the year-ago value to £1.01 billion ($1.32 billion). Also, the company’s cash inflow from operating activities rose 23.7% year-over-year to £188 million ($245.68 million).
Furthermore, as of March 31, 2023, the company’s cash and cash equivalents stood at £575 million ($751.43 million), compared to £489 million ($639.04 million) as of September 30, 2022.
Past and Expected Financial Performance
Over the past three years, PLTR’s revenue grew at a CAGR of 34.8%, whereas SGPYY rose at a 2.4% CAGR. Also, PLTR’s total assets grew at a 29.5% CAGR while SGPYY declined at a marginal CAGR during the same period.
For the fiscal year ending December 2023, analysts expect PLTR’s revenue to increase 15.9% year-over-year to $2.21 billion. Likewise, the company’s revenue for the fiscal year 2024 is expected to grow 19% year-over-year to $2.63 billion.
SGPYY’s revenue for the fiscal year (ending September 2023) is expected to increase 21.5% year-over-year to $2.82 billion. Furthermore, analysts expect the company’s revenue for the next fiscal year to rise 7.7% year-over-year to $3.04 billion.
Valuation
In terms of trailing-12-month Price/Sales, SGPYY is currently trading at 4.74x, 73% lower than PLTR, which is trading at 17.56x. Moreover, SGPYY’s trailing-12-month EV/Sales multiple of 5.10 is 69.2% lower than PLTR’s 16.58. Additionally, SGPYY’s trailing-12-month price-to-book ratio of 7.64x is 41.3% lower than PLTR’s 13.02x.
Thus, SGPYY is relatively affordable.
Profitability
SGPYY’s trailing-12-month revenue is 1.3 times what PLTR generates. Moreover, SGPYY is more profitable, with a trailing-12-month gross profit margin of 93.05% compared to PLTR’s 78.75%. In addition, SGPYY’s trailing-12-month EBITDA margin of 18.52% compares to PLTR’s negative 4.59%.
Furthermore, SGPYY’s trailing-12-month ROCE and ROTC of 16.57% and 8.65% compared to PLTR’s negative 9.70% and negative 2.58%, respectively. Also, SGPYY’s trailing-12-month cash from operations of $396.01 million compares with PLTR’s $375.64 million.
POWR Ratings
PLTR has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, SGPYY has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has a D grade for Stability, in sync with its 24-month beta of 1.87. In contrast, SGPYY has a B grade for Stability, consistent with its 24-month beta of 0.73.
Of the 25 stocks in the Software - SAAS industry, PLTR is ranked #20, while SGPYY topped the list.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Quality, and Sentiment. Click here to view PLTR’s ratings. Get all SGPYY ratings here.
The Winner
The swift pace of innovation and globalization has intensified businesses’ dependence on software solutions. Additionally, enterprises are rapidly adopting cloud services to improve their business operations, boosting the demand for SaaS. Hence, leading SaaS stocks PLTR and SGPYY should benefit from the industry’s optimistic growth prospects.
However, given PLTR's lower stability and comparatively higher valuation, its competitor SGPYY could be a better buy this month.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Software – SAAS industry here.
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PLTR shares were trading at $16.50 per share on Friday afternoon, down $0.24 (-1.43%). Year-to-date, PLTR has gained 157.01%, versus a 18.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Palantir Technologies (PLTR) vs. The Sage Group (SGPYY): Which Is July's Better Software Stock Pick? StockNews.com
