The global software as a service (SaaS) industry has demonstrated solid growth over the last decade. Several factors, including cost-effectiveness, scalability, and ease of implementation, have fueled demand for software solutions offered via the Software as a Service (SaaS) model.
Given the industry’s solid growth prospects, investors could consider buying fundamentally sound software stocks EverCommerce Inc. (EVCM), MiX Telematics Limited (MIXT) and Vimeo, Inc. (VMEO) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
The SaaS market is expected to be worth approximately $197 billion in 2023, rising to $232 billion by 2024, driven by increasing cloud computing adoption, rising demand for mobile applications, and the rise of AI and machine learning.
Also, the popularity of hybrid work and the necessity for scalable and cost-effective software solutions have contributed to the SaaS market’s growth. As businesses prioritize flexibility and efficiency, SaaS providers are expected to develop and offer increasingly specialized and customizable solutions to fulfill the needs of a wide range of industries.
Moreover, the revenue from the Software as a Service (SaaS) market is estimated to reach $1.02 trillion by 2032, at a
Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 37.5% returns over the past nine months.
In light of these encouraging trends, let’s look at the fundamentals of the three top-rated B-rated Software - SAAS stocks, beginning with number 3.
Stock #3: EverCommerce Inc. (EVCM)
EVCM provides integrated software-as-a-service solutions for service-based small and medium-sized businesses in the United States and internationally.
EVCM’s forward non-GAAP P/E multiple of 0.94 is 48.1% lower than the industry average of 1.81. Its forward Price/Book multiple of 2.35% is 40.8% lower than the industry average of 3.96.
EVCM’s trailing-12-month EBITDA margin of 13.24% is 44.4% higher than the industry average of 9.17%. Its trailing-12-month levered FCF margin of 14.10% is 91.1% higher than the 7.38% industry average.
For the fiscal second quarter that ended June 30, 2023, EVCM’s total revenues increased 8.1% year-over-year to $170.05 million. Its adjusted gross profit increased 9.5% year-over-year to $111.87 million. Additionally, its adjusted EBITDA came in at $38.80 million, representing an increase of 26.2% year-over-year.
The consensus revenue estimate of 688.36 million for the year ending December 2023 represents a 10.9% increase year-over-year. Its EPS is expected to grow at 2.4% year-over-year to $0.42 for the same period. It surpassed EPS estimates in three of the four trailing quarters. EVCM’s shares have gained 32.9% over the past nine months to close the last trading session at $10.23.
EVCM’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.
EVCM also has an A grade for Growth and Sentiment and a B for Stability. It is ranked #7 out of 23 stocks in the B-rated Software - SAAS industry. Click here for the additional POWR Ratings for Value, Momentum, and Quality for EVCM.
Stock #2: MiX Telematics Limited (MIXT)
MIXT and its subsidiaries provide fleet and mobile asset management solutions through a software-as-a-service (SaaS) delivery model. Its offers include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
MIXT’s forward EV/Sales multiple of 0.81 is 68.7% lower than the industry average of 2.60. Its forward EV/EBIT multiple of 6.39% is 63.4% lower than the industry average of 17.43.
MIXT’s trailing-12-month ROCE of 4.90% is 307.8% higher than the 1.20% industry average. Its trailing-12-month ROTA of 3.13% is significantly higher than the 0.02% industry average.
For the fiscal first quarter ended June 30, 2023, MIXT’s total revenues increased 3.7% year-over-year to $36.35 million. Its gross profit increased 6.3% over the prior-year quarter to $21.73 million. The company’s net income attributable to MIXT increased 137.2% year-over-year to $1.61 million.
In addition, its EPS came in at $0.003, representing an increase of 200% year-over-year. Also, its adjusted EBITDA increased 44.3% year-over-year to $8.66 million.
Street expects MIXT’s revenue to increase 2.2% year-over-year to $147.93 million for the year ending March 2024. Its EPS is expected to grow at 58.3% year-over-year to $0.57 for the same period. Shares of MIXT has lost 18.6% over the past month to close the last trading session at $5.50.
MIXT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Value and a B for Growth. To see additional MIXT’s ratings for Momentum, Stability, Sentiment, and Quality, click here.
Stock #1: Vimeo, Inc. (VMEO)
VMEO and its subsidiaries provide video software solutions worldwide. The company provides 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 of 0.75% is 59.5% lower than the 1.85% industry average.
VMEO’s trailing-12-month asset turnover ratio of 0.70x is 44.7% higher than the 0.48x industry average. Its trailing-12-month gross profit margin of 77.05% is 56.1% higher than the 49.37% industry average.
For the second quarter ended June 30, 2023, VMEO’s revenue came in at $101.84 million. Its gross profit came in at $78.99 million. Its net income came in at $5.87 million, compared to a net loss of $26.50 million in the prior-year quarter.
Also, its EPS came in at $0.03, compared to a loss per share of $0.16 in the year-ago period.
Analysts expect VMEO’s revenue to increase 5.6% year-over-year to $432.15 million for the year ending December 2024. Shares of VMEO has lost marginally year-to-date to close the last trading session at $3.42.
It’s no surprise that VMEO has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Sentiment and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated VMEO for Growth, Momentum and Stability. Get all VMEO ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EVCM shares were trading at $10.07 per share on Monday afternoon, down $0.16 (-1.56%). Year-to-date, EVCM has gained 35.35%, versus a 13.45% 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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