Geopolitical turmoil and macroeconomic headwinds upended investor sentiments and led to massive tech selloffs last year. Last year was challenging for stocks of Software-as-a-Service (SaaS) companies to navigate through such volatilities. In response, tech companies have resorted to reducing headcounts to bolster their balance sheet.
However, SaaS demand is rising, especially with the rising adoption of public cloud services across enterprises. The global public cloud market is expected to reach $649.62 billion by 2028 at a CAGR of 15.1%.
Furthermore, the demand for SaaS solutions is expected to increase amid higher corporate spending on artificial intelligence, big data analytics, and digital transformation.
The global SaaS market is expected to grow from $235.58 billion in 2022 to $253.62 billion in 2023 at a CAGR of 7.7% and is projected to grow to $328.03 billion in 2027 at a CAGR of 6.6%.
In this backdrop, we think fundamentally sound SaaS stocks trading under $100, The Descartes Systems Group Inc. (DSGX), Informatica Inc. (INFA), Consensus Cloud Solutions, Inc. (CCSI), and Park City Group, Inc. (PCYG) might be solid watchlist additions this year.
The Descartes Systems Group Inc. (DSGX)
Headquartered in Waterloo, Canada, DSGX provides cloud-based logistics and supply chain management business process solutions that enhance worldwide logistics-intensive businesses’ productivity, performance, and security. Its Logistics Technology platform offers a range of modular, cloud-based, and interoperable web and wireless logistics management applications.
On January 6, DSGX acquired Supply Vision, a provider of shipment management solutions for North American Logistics Services Providers (LSPs). DSGX’s CEO, Edward J Ryan, said, “The Supply Vision acquisition complements our recent investments in QuestaWeb, Kontainers, and Portrix, as we look to broaden our footprint for LSPs.”
DSGX’s trailing-12-month EBIT margin of 27.61% is 369.4% higher than the industry average of 5.88%. Also, its trailing-12-month net income margin of 19.37% is 501.2% higher than the 3.22% industry average.
DSGX’s revenues for the fiscal third quarter that ended October 31, 2022, increased 11.5% year-over-year to $121.47 million. Its net income increased 3.8% year-over-year to $26.47 million. Additionally, its adjusted EBITDA increased 13.1% year-over-year to $54.50 million, while its EPS came in at $0.31, representing a 3.3% rise from the prior-year quarter.
DSGX’s revenue for the fiscal fourth quarter (ended January 2023) is expected to increase 9.9% year-over-year to $123.54 million. Its EPS for the same quarter is expected to be $0.31. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 6.7% over the past six months and 2.3% intraday to close the last trading session at $74.68.
DSGX’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Stability and a B for Sentiment and Quality. Within the Software – SAAS industry, it is ranked first out of 27 stocks.
To see the additional ratings of DSGX for Growth, Value, and Momentum, click here.
Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale. The company’s platform includes a suite of interoperable data management products, API, and application integration products.
On November 8, 2022, INFA announced that it is expanding its SaaS version of multidomain Master Data Management (MDM) to Asia with Microsoft Azure. The expanded reach in the region is expected to help companies use cloud-native MDM to attain better business outcomes.
In the same month, INFA announced the availability of the Intelligent Data Management Cloud (IDMC) platform for state and local governments. The platform is anticipated to help government agencies deliver timely and efficient public services with multiple capabilities.
INFA’s trailing-12-month gross profit margin of 79.68% is 62.8% higher than the industry average of 48.94%. Also, its trailing-12-month EBITDA margin of 11.67% is 4.8% higher than the 11.14% industry average.
INFA’s total revenues for the third quarter that ended September 30, 2022, increased 2.8% year-over-year to $371.95 million. Its subscription revenue increased 10.5% from the prior-year period to $214 million.
The company’s gross profit increased 1.3% from the same period the prior year to $284.76 million. Its non-GAAP net income and net income per share came in at $52.61 million and $0.18, respectively.
Analysts expect INFA’s EPS for the fiscal first quarter ending March 2023 to increase 2.4% year-over-year to $0.20. Its revenue for the same quarter is expected to increase 6.4% year-over-year to $385.43 million. The company surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 11.7% over the past month and 2.3% intraday to close the last trading session at $18.20.
INFA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
INFA has a B grade for Value. It is ranked #3 within the same industry.
In addition to the POWR Ratings stated above, one can see INFA ratings for Growth, Momentum, Stability, Sentiment, and Quality here.
Consensus Cloud Solutions, Inc. (CCSI)
CCSI provides information delivery services with a software-as-a-service platform worldwide. Its products and solutions include eFax, an online faxing solution, as well as MyFax, MetroFax, Sfax, SRfax, and other brands.
In terms of forward EV/EBITDA, CCSI is trading at 9.35x, 32.6% lower than the industry average of 13.87x. Also, its forward EV/EBIT multiple of 10.71 is 37.2% lower than the industry average of 17.06.
CCSI’s trailing-12-month EBIT margin of 42.19% is 617.4% higher than the industry average of 5.88%. Also, its trailing-12-month net income margin of 17.62% is 446.8% higher than the 3.22% industry average.
CCSI’s revenue increased 7.5% year-over-year to $95.91 million in its fiscal first quarter that ended September 30, 2022. Its gross profit increased 7.9% year-over-year to $80.49 million. Its adjusted non-GAAP net income and adjusted non-GAAP income per share came to $30.29 million and $1.52, respectively. Also, its adjusted EBITDA came in at $51.31 million for the same quarter.
Street expects the company’s revenue to increase 7.2% year-over-year to $97.51 million for its fiscal first quarter (ending March 2023). Likewise, the consensus EPS estimate of $1.36 indicates a 2.2% rise year-over-year for the same quarter. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 7% over the past six months to close the last trading session at $59.36. Moreover, it has gained 10.4% over the past month.
CCSI’s promising prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CCSI has a B grade for Value, Sentiment, and Quality. It is ranked #6 within the same industry.
In addition to what we’ve stated above, one can see CCSI’s POWR Ratings for Growth, Stability, and Momentum here.
Park City Group, Inc. (PCYG)
PCYG operates as a software-as-a-service provider that designs, develops, and markets proprietary software products. The company offers ReposiTrak MarketPlace, ReposiTrak Compliance and Food Safety solutions, and ReposiTrak Supply Chain solutions.
On December 13, ReposiTrak welcomed Haven Foods, LLC, to its ReposiTrak Traceability Network®, the solution backed by the industry for being easy to adopt at the lowest cost possible. ReposiTrak Traceability Network synchronizes what they send in any format, making it useable and accessible at a cost that doesn’t impact margin. PCYG should benefit from this venture.
On September 28, 2022, PCYG’s board of directors declared a quarterly dividend of $0.015 per share, paid to shareholders on November 15, 2022. This reflects the company’s cash generation abilities.
In terms of forward EV/EBITDA, PCYG is trading at 12.49x, 10% lower than the industry average of 13.87x. Also, its forward EV/EBIT multiple of 14.24 is 16.5% lower than the industry average of 17.06.
PCYG’s trailing-12-month EBIT margin of 24.58% is 318% higher than the industry average of 5.88%. Also, its trailing-12-month net income margin of 23.84% is 639.9% higher than the 3.22% industry average.
PCYG’s revenue increased 3.5% year-over-year to $4.72 million in its fiscal first quarter that ended September 30, 2022. Its income from operations increased 5.3% year-over-year to $1.23 million. Its net income applicable to common stockholders grew 42.3% from its year-ago value to $1.14 million. Its income per share increased 50% from its year-ago value to $0.06.
Street expects the company’s revenue to increase 8.2% year-over-year to $4.93 million for its fiscal third quarter ending March 2023. Likewise, the consensus EPS estimate of $0.07 indicates a 24.8% rise year-over-year. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 11.3% over the past six months to close the last trading session at $5.81. Moreover, it has gained 17.4% over the past month.
It is no surprise that PCYG has an overall rating of B, which translates to Buy in our proprietary rating system.
PCYG has an A grade for Quality and a B for Stability and Sentiment. It is ranked first within the same industry.
Beyond what we have stated above, one can see PCYG’s POWR Ratings for Growth, Value, and Momentum here.
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DSGX shares were unchanged in premarket trading Thursday. Year-to-date, DSGX has gained 7.22%, versus a 7.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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