3 A-Rated Software Stocks to Safeguard Your Portfolio – The realm of software development flourishes, propelled by the ever-expanding exigency for digitization and widespread data utilization across diverse industries, facilitating enhanced business decision-making. Furthermore, the burgeoning embrace of public cloud-based services augments the enduring prospects of this industry.
Against this backdrop, it would be prudent to consider investing in fundamentally robust software stocks, such as Docebo Inc. (DCBO – Get Rating), Salesforce, Inc. (CRM – Get Rating), and IBEX Limited (IBEX – Get Rating), all of which carry an A (Strong Buy) rating in our exclusive POWR Ratings system.
Before delving into their fundamentals, let us explore the forces shaping the prospects of the software industry.
Global enterprises are prioritizing the augmentation of their digital capabilities through sophisticated software solutions, aiming to streamline operations. A transition to cloud-based solutions is underway, offering enhanced flexibility and scalability. Heightened corporate investments in cloud computing, digital transformation, big data analytics, and artificial intelligence fuel a robust demand for advanced software solutions.
The U.S. software market experiences expansion driven by heightened demand from the banking, retail, and healthcare sectors. Gartner projects a 6.8% year-over-year growth in worldwide IT spending, reaching $5 trillion in 2024. Notably, software spending is anticipated to surge by 12.7% this year compared to the previous, amounting to $1.03 trillion.
The market for application development software thrives on the increasing adoption of cloud technologies, integration of the Internet of Things (IoT), mobile app development, and the demand for sophisticated applications facilitated by low-code platforms, emphasizing DevOps and digitization. The global cloud market is expected to escalate from $626.40 billion in 2023 to $727.90 billion in 2024, marking a significant 16.2% year-over-year increase.
Moreover, the surging popularity of public cloud services has propelled the adoption of Software as a Service (SaaS), allowing software companies to benefit from subscription-based, recurring revenue models. The global SaaS market is poised to grow at a Compound Annual Growth Rate (CAGR) of 18.7%, reaching $908.21 billion by the year 2030.
Adding to the momentum, the growth of the software market will be catalyzed by the integration of generative artificial intelligence (AI) into various software applications. Goldman Sachs estimates the total addressable market (TAM) for generative AI software to be approximately $150 billion. The discernible interest of investors in software stocks is evident through the iShares Expanded Tech-Software ETF’s (IGV) impressive 50.8% returns over the past year.
3 SOFTWARE STOCKS PRIMED FOR DOUBLING THIS YEAR
Considering these favorable trends, let’s scrutinize the underpinnings of the three Software – Application selections, commencing with the third contender.
Stock #3: Docebo Inc. (DCBO – Get Rating)
Situated in Toronto, Canada, DCBO functions as a purveyor of learning management software, furnishing artificial intelligence (AI)-powered learning platforms across North America, Europe, and the Asia-Pacific region. Its Learning Management System (LMS) serves to educate internal and external workforces, partners, and clientele.
Regarding the trailing-12-month levered Free Cash Flow (FCF) margin, DCBO’s 18.18% surpasses the industry average by an impressive 104%. Simultaneously, its 80.86% trailing-12-month gross profit margin exceeds the industry norm by 65.6%. Moreover, the stock’s 0.65x trailing-12-month asset turnover ratio is 5.4% higher than the industry average of 0.62x.
For the third quarter concluding on September 30, 2023, DCBO witnessed a 25.8% year-over-year surge in revenues, reaching $46.51 million. Gross profit ascended by 26.5% to $37.73 million compared to the preceding year’s quarter. Furthermore, non-GAAP net income amounted to $4.95 million, reflecting a substantial 236.4% increase, with earnings per share standing at $0.15, a formidable 275% surge year-over-year.
Analysts anticipate DCBO’s EPS and revenues for the quarter concluding on December 31, 2023, to ascend by 101.8% and 24.2% year-over-year, totaling $0.14 and $48.39 million, respectively. Remarkably, DCBO has outperformed consensus EPS estimates in each of the past four quarters, and the stock has gained 22.7% in the last nine months, closing the latest trading session at $44.59.
Given these metrics, DCBO maintains an A overall rating, denoting a Strong Buy in our proprietary POWR Ratings system, which evaluates stocks across 118 factors.
Stock #2: Salesforce, Inc. (CRM – Get Rating)
CRM provides global Customer Relationship Management (CRM) technology, fostering connectivity between companies and customers. Its service encompasses sales data storage, lead and progress monitoring, opportunity forecasting, analytics-driven insights, relationship intelligence, and the delivery of quotes, contracts, and invoices.
In terms of the trailing-12-month EBITDA margin, CRM’s 24.96% is a notable 170.2% higher than the industry average of 9.24%. Likewise, its trailing-12-month gross profit margin of 74.99% exceeds the industry standard by 53.6%. Furthermore, CRM’s trailing-12-month EBIT margin stands at 15.87%, an impressive 239% higher than the industry average of 4.68%.
For the fiscal third quarter concluding on October 31, 2023, CRM reported a remarkable 11.3% year-over-year surge in total revenues, amounting to $8.72 billion. Net cash provided by operating activities soared by 389.5% over the prior-year quarter, reaching $1.53 billion. Non-GAAP net income witnessed a 47.9% year-over-year rise to $2.09 billion, with non-GAAP EPS at $2.11, marking a 50.7% increase.
Street expectations for CRM’s EPS and revenue for the quarter ending January 31, 2024, indicate a 34.8% and 10% year-over-year growth, totaling $2.26 and $9.22 billion, respectively. Having exceeded consensus EPS estimates for the past four quarters, CRM has seen a substantial 69.6% gain over the last year, closing the latest trading session at $279.94.
In light of its robust fundamentals, CRM maintains an A overall rating, designating a Strong Buy in our proprietary rating system.
Stock #1: IBEX Limited (IBEX – Get Rating)
IBEX provides comprehensive, technology-driven solutions for the customer lifecycle experience. Its portfolio spans customer service, technical support, revenue generation, and value-added outsourced back-office services, alongside customer acquisition solutions encompassing digital marketing, e-commerce technology, and platform solutions.
On December 5, 2023, IBEX disclosed a strategic alliance with Sapling.ai to integrate Sapling.ai’s AI-powered messaging assistant technology into its Wave X platform. This collaboration aims to augment agent capabilities, delivering an enhanced customer experience across diverse applications.
Regarding the trailing-12-month net income margin, IBEX’s 6.25% surpasses the industry average by 3.3%. Additionally, its trailing-12-month Return on Total Assets of 10.99% is 124.7% higher than the industry norm of 4.89%. Moreover, its 1.81x trailing-12-month asset turnover ratio exceeds the industry average by 124.4%.
For the first quarter concluding on September 30, 2023, IBEX reported total revenues of $124.61 million, marking an 8.6% year-over-year rise in income from operations to $8.33 million. Net cash inflow from operating activities surged by 56.1% over the prior-year quarter to $8.68 million.
Anticipations for IBEX’s revenue for the quarter ending March 31, 2024, indicate a 1.3% year-over-year increase to $133.31 million. Furthermore, its EPS for the quarter ending June 30, 2024, is expected to soar by 81.9% year-over-year to $0.60. Having surpassed Street EPS estimates in three of the past four quarters, IBEX has witnessed a 14.1% gain in the last three months, concluding the latest trading session at $18.28.
In alignment with its promising outlook, IBEX maintains an A overall rating, signifying a Strong Buy in our proprietary rating system.
IBEX Limited is positioned at the 7th spot in the Software – Application industry rankings. The company boasts an A grade for Value, signifying strong value propositions. Additionally, it holds a B grade for Stability, Sentiment, and Quality, indicating a balanced performance across these crucial metrics.
To delve deeper into IBEX’s standing, one can explore its Growth and Momentum ratings. These key factors provide a more comprehensive understanding of the company’s trajectory and potential for future development. INEC
