The demand for software products, solutions, and services has been high over the past two years, thanks to the extended remote lifestyle and continuing adoption of advanced technologies, including cloud computing, machine learning, artificial intelligence, cybersecurity, and automation.
Increased global IT spending amid continuing remote work arrangements might drive the growth of the software industry this year. According to Gartner, Inc. (IT), worldwide software spending is projected to reach $614.49 million in 2022, representing a 9.8% year-over-year increase. And U.S. software market revenue is expected to hit $384.50 billion by 2027, growing at a 4.9% CAGR.
Given this backdrop, we think it could be profitable to invest in quality small-cap software companies CSG Systems International, Inc. (CSGS), WM Technology, Inc. (MAPS), and Benefitfocus, Inc. (BNFT).
Click here to check out our Software Industry Report for 2022
CSG Systems International, Inc. (CSGS)
CSGS in Englewood, Colo., is the provider of revenue management and digital monetization, customer engagement, and payment solutions to the communications industry, and operates in the Americas, Europe, the Middle East, Africa, and Asia-Pacific. In addition, the company offers managed services and professional services to maintain its solutions. CSGS serves retail, healthcare, insurance, financial services, and government entities. It has a market capitalization of $2.07 billion.
Last month, CSGS entered a strategic partnership with Velosimo, a no-code, cloud-native technology connector provider. The partnership allows government agencies to connect and augment their technology stacks with enterprise resource planning (ERP) software vendors via a single processing partner. The collaboration is expected to boost the company's profitability.
In February, CSGS launched CSG Encompass, a SaaS, open, integrated, and modular solution. Encompass simplifies the complexity of multi-sided B2B2X ecosystems and makes delivering a 5G B2B2X marketplace easier. It provides a solution that CSPs need to innovate and co-create with partners. This new launch might extend the company's customer reach and boost its revenue streams.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, CSGS' adjusted revenue increased 5.9% year-over-year to $257.65 million. Its operating income improved 17.8% from the prior-year period to $27.88 million. Its net income rose 30% year-over-year to $17.25 million. And the company's earnings per common share increased 31.7% year-over-year to $0.54.
The $1.01 billion consensus revenue estimate for its fiscal year 2022, ending Dec.31, 2022, represents a 3.6% gain from the same period in 2021. The $3.55 consensus EPS estimate for the current year indicates a 5.9% year-over-year rise. It is no surprise that CSGS has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock gained 11.1% in price year-to-date and 38.9% over the past year. It closed yesterday's trading session at $64.03.
CSGS' POWR Ratings reflect this promising outlook. The stock has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
CSGS has a B grade for Stability and Quality. Within the Software - Business industry, it is ranked #4 of 60 stocks.
To see additional POWR Ratings (Growth, Value, Momentum, and Sentiment) for CSGS, click here.
WM Technology, Inc. (MAPS)
MAPS in Irvine, Calif., is the provider of e-commerce and compliance software solutions to retailers and brands in the cannabis market in the United States, Canada, and internationally. The company offers Weedmaps marketplace and a WM Business suite of monthly subscription-based software solutions. In addition, it offers advertising solutions, customer relationship management solutions, and logistics software solutions. MAPS has a market capitalization of $1.07 billion.
During the fourth quarter, MAPS added more than 300 new paying clients and expanded its share of licensees in the United States. "We believe our growth in the current environment underscores the value we continue to deliver to our clients and is evidence of how they fundamentally understand the importance of Weedmaps to grow their businesses. We will continue to drive deep client engagement, establish Weedmaps as the center of commerce for cannabis consumers and expand adoption of WM Business as we look to attack new markets," said Chris Beals, CEO, and Chairman of MAPS.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, MAPS's revenues increased 22.2% year-over-year to $54.18 million. Its EBITDA grew 612.5% from the prior-year period to $79.06 million. MAPS' cash rose 240.3% year-over-year to $67.78 million for its fiscal year 2021 (ended December 31). Its total current assets increased 189.6% from the prior year to $98.93 million.
Analysts expect MAPS' revenue for its fiscal year 2022 ending Dec. 31, 2022, to come in at $258.41 million, representing a 33.8% rise year-over-year.
Shares of MAPS have increased 12.2% in price year-to-date and 30.8% over the past three months. It closed yesterday's trading session at $6.71.
MAPS' strong fundamentals are reflected in its POWR Ratings. It has an overall B grade, which translates to Buy in our proprietary rating system.
MAPS has a grade of B for Value, Sentiment, and Quality. Within the Software - Application industry, it is ranked #28 of 159 stocks.
To see additional POWR Ratings (Growth, Momentum, and Stability) for MAPS, click here.
Benefitfocus, Inc. (BNFT)
With a $396.17 million market capitalization, BNFT in Charleston, S.C., offers cloud-based benefits management technology solutions for employees, health plans, and brokers in the U.S. the company's products include Benefitplace, a cloud-based benefits management portal, Health Insights, a data analytics solution, ACA Management, and Reporting, a solution to manage ACA compliance and Billing & Payments, an electronic invoice presentment and payment solution.
Last November, BNFT acquired Tango Health, an innovative software, and services company. Through this acquisition, the company is expanding ACA compliance and reporting solutions for employees. In addition, it provided BNFT decision support, benefits communication, and engagement capabilities. The acquisition might accelerate the company's drive to strengthen the foundation of its core offering and expand the business.
BNFT's net income grew 28.9% year-over-year to $11.27 million in its fiscal 2021 fourth quarter, ended Dec.31, 2021. The company's net income per common share rose 50% year-over-year to $0.24. Its net cash and cash equivalents provided by operating activities increased 21.2% year-over-year to $33.50 million for its fiscal year 2021 ended December 31. Its net cash and cash equivalents provided by investing activities improved 115.8% from the prior year to $17.10 million.
Analysts expect BNFT's EPS for its fiscal year 2022 second quarter, ending June 30, 2022, to grow 16.7% year-over-year. The company has an impressive revenue surprise history; it has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock improved 10.9% in price year-to-date and 11.3% over the past three months. It closed yesterday's trading session at $11.82.
BNFT's POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
BNFT has a B grade for Sentiment and Value. It is ranked #20 of 159 stocks in the Software - Application industry.
Click here to see BNFT's POWR Ratings for Stability, Momentum, Growth, and Quality.
Click here to check out our Software Industry Report for 2022
CSGS shares were trading at $64.64 per share on Tuesday morning, up $0.61 (+0.95%). Year-to-date, CSGS has gained 12.65%, versus a -6.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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