The software industry’s growth is fueled by rising spending and cloud adoption, as well as its innovative, cost-effective solutions and adaptability to market trends. Given the industry’s growth prospects, investors could consider buying fundamentally sound software stocks IBEX Limited (IBEX), Yalla Group Limited (YALA), and Rimini Street, Inc. (RMNI) for solid returns.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects software industry.
The demand for software applications has expanded significantly with increasing investments in digitalization. As a result, the number of software development companies catering to these demands has increased.
The worldwide application development software market is expected to reach $234.70 billion by 2028, increasing at a 6.9% CAGR. Also, the market is expected to generate $179.90 billion in revenue in 2024.The market for application development software is likely to expand due to the rising need for scalable and customized software applications.
In addition, the software market in the U.S. is predicted to grow at a 4.1% CAGR until 2028, resulting in a market volume of $414.70 billion.
Moreover, investor’s interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 25.3% returns over the past three months.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Software - Application stocks, starting with number three.
Stock #3: IBEX Limited (IBEX)
IBEX provides end-to-end technology-enabled customer lifecycle experience solutions. The company’s products and services portfolio includes offers of customer service, technical support, revenue generation, and other value-added outsourced back-office services, as well as customer acquisition solutions that comprise digital marketing, e-commerce technology, and platform solutions.
On January 30, 2024, IBEX unveiled Wave iX, the ultimate AI-powered digital-first customer experience (CX) and employee experience (EX) solution set. Wave iX seamlessly integrates breakthrough AI-powered solutions with ibex's cutting-edge CX platform, allowing for sophisticated, hyper-personalized, and cognitive interactions that foster closer relationships between brands and their customers.
This integration enables organizations to use AI technology to better learn customer preferences, predict their needs, and provide customized services at scale.
IBEX’s forward EV/EBITDA of 4.96x is 57.9% lower than the industry average of 11.80x. Its forward non-GAAP P/E of 8.72x is 53.4% lower than the industry average of 18.70x.
IBEX’s trailing-12-month ROCE of 25.04% is 101.1% higher than the industry average of 12.45%. Its trailing-12-month ROTA of 10.99% is 124.1% higher than the industry average of 4.91%.
For the first quarter, which ended September 30, 2023, IBEX’s total revenues came in at $124.61 million. Its income from operations rose 8.6% year-over-year to $8.33 million.
Also, its adjusted net income increased 11.4% year-over-year to $7.57 million. Additionally, its adjusted EPS came in at $0.40, representing an increase of 11.1% year-over-year.
The consensus revenue estimate of $527.65 million for the year ending June 2024, increased marginally year-over-year. Its EPS is expected to grow 6.3% year-over-year to $2.08 for the same period. It surpassed EPS estimates in three of four trailing quarters. IBEX’s shares have gained 8.9% over the past three months to close the last trading session at $18.17.
IBEX’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IBEX also has an A grade for Value and a B for Stability, Sentiment and Quality. It is ranked #7 out of 132 stocks in the Software - Application industry. Click here for the additional POWR Ratings for Growth and Momentum for IBEX.
Stock #2: Yalla Group Limited (YALA)
Based in Dubai, the United Arab Emirates, YALA runs a social networking and entertainment platform in the Middle East and North Africa, featuring voice-centric group chat on Yalla and casual gaming on Yalla Ludo. The platform offers group chatting, gaming services, virtual item sales, and upgrade options.
YALA’s forward EV/Sales of 0.75x is 60.9% lower than the industry average of 1.93x. Its forward Price/Book of 1.62x is 21.2% lower than the industry average of 2.05x.
YALA’s trailing-12-month ROCE of 21.38% is 405.7% higher than the 4.23% industry average. Its trailing-12-month ROTA of 10.99% is 124.1% higher than the industry average of 4.91%.
In the third quarter, which ended September 30, 2023, YALA’s revenues grew 6.4% year-over-year to $85.19 million. The company generated non-GAAP operating income and net income of $35.45 million and $38.28 million, up 20.4% and 30.3% from the previous-year quarter, respectively. Moreover, its non-GAAP EPS rose 23.5% from the prior-year quarter to $0.21.
Street expects YALA’s revenue to increase 5.5% year-over-year to $335.37 million for the fiscal year ending December 2024. Its EPS is expected come in at $0.74 for the same period. It surpassed EPS estimates in all the four trailing quarters. Shares of YALA have gained 41.1% over past nine months to close the last trading session at $5.08.
YALA’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
YALA has a B grade for Value, Sentiment and Quality. It ranks #6 in the same industry. Click here to access additional YALA ratings (Growth, Stability and Momentum).
Stock #1: Rimini Street, Inc. (RMNI)
RMNI is a global provider of end-to-end enterprise software support products and services for various industries. The company offers application management services for Oracle and SAP enterprise software products.
RMNI’s forward EV/Sales of 0.58x is 80% lower than the industry average of 2.91x. Its forward Price/Sales of 0.69x is 76.4% lower than the industry average of 2.90x.
RMNI’s trailing-12-month EBIT margin of 11.81% is 158.6% higher than the industry average of 4.57%. Its trailing-12-month ROTC of 139.42% is significantly higher than the industry average of 2.57%.
In the fiscal third quarter that ended September 30, 2023, RMNI’s revenue and gross profit increased 5.4% and 7.5% year-over-year to $107.45 million and $67.34 million, respectively. Moreover, net income per share attributable to common stockholders stood at $0.08.
For the same quarter, non-GAAP net income and adjusted EBITDA stood at $12.06 million and $18.24 million, up 45.7% and 81.8% from the prior-year quarter, respectively.
Analysts expect RMNI’s revenue to come in at $434.28 million for the year ending December 2024, increased marginally year-over-year. Its EPS is expected to come in at $0.38 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 37.1% over the past three months to close the last trading session at $3.29.
RMNI has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability and Quality. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated RMNI for Sentiment and Momentum. Get all RMNI ratings here.
What To Do Next?
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YALA shares were trading at $5.02 per share on Friday morning, down $0.06 (-1.18%). Year-to-date, YALA has declined -18.11%, versus a 3.48% 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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