Rapid digital transformation across various sectors, significant deployment of cloud-based technologies, and emphasis on innovative technologies are expected to bolster the growth prospects of the software industry. Moreover, despite ongoing macroeconomic headwinds, global software spending is expected to increase at a 10.3% CAGR from 2021 to 2023.
However, software giant Adobe Inc.’s (ADBE) shares have declined 50.4% year-to-date and 26.2% over the past month. The stock still seems pricey in terms of valuation. Its forward Price/Sales multiple of 7.36 is 204.4% higher than the industry average of 2.42. Also, in terms of its forward EV/Sales, it is trading at 7.28x, 205.3% higher than the industry average of 2.38x.
Additionally, ADBE’s sudden announcement to acquire the startup rival Figma Inc. for $20 million, the largest takeover of a private software maker, has created an uproar among investors. Wall Street criticized the deal, stating that it was too expensive and indicating that ADBE was under severe competitive pressure.
Thus, we think fundamentally solid software stocks Synopsys, Inc. (SNPS), Rimini Street, Inc. (RMNI), Progress Software Corporation (PRGS), and Mitek Systems, Inc. (MITK) could be better investments than ADBE now.
Synopsys, Inc. (SNPS)
SNPS offers electronic design automation software products to design and test integrated circuits. The company offers Fusion Design Platform, Verification Continuum Platform, and FPGA design products that are programmed to perform specific functions.
On September 27, SNPS announced an innovative streaming fabric technology that enables real-time silicon health monitoring for reliable end-device operation. Generated by Synopsys TestMAX® DFT, the new streaming fabric is expected to significantly reduce the time to test and analyze chips for anomalies and failures. This innovation should prove to be strategically beneficial for the company.
On September 1, SNPS’ Board of Directors replenished its stock repurchase program with an increased authorization to purchase up to $1.5 billion of common stock to generate long-term value for its shareholders. "We continue to execute very well, balancing our strategic investments to grow the business, expand margins and return capital to shareholders," said Trac Pham, the company's chief financial officer.
For the third quarter that ended July 31, 2022, SNPS’ total revenue increased 18% year-over-year to $1.25 billion. Its operating income improved 15.9% from its year-ago value to $233.93 million, while its net income amounted to $222.63 million, up 12.1% from the prior-year quarter. The company’s EPS grew 12.6% year-over-year to $1.43.
The $1.84 consensus EPS estimate for the fourth quarter ending October 2022 represents a 1% improvement year-over-year. The consensus revenue estimate of $1.28 billion indicates an increase of 11% year-over-year. Moreover, the company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 2.3% intraday to close the last trading session at $313.16.
SNPS’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates 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 Quality and a B for Sentiment. Within the Software – Application industry, it is ranked #16 of 147 stocks.
To see additional POWR Ratings for Growth, Value, Momentum, and Stability for SNPS, click here.
Rimini Street, Inc. (RMNI)
RMNI offers enterprise software products, services, and support for various industries. It provides software support services for Oracle and SAP enterprise software products. The company sells its solutions mainly through direct sales organizations.
On August 24, RMNI announced that the University of Technology Sydney (UTS) switched to RMNI for improved support and security of its Oracle database and technology platforms. This might bolster the company’s position in the education market.
On July 27, RMNI launched Rimini Protect™, a new suite of security solutions that provides better protection to organizations from continuously evolving cybersecurity threats. This innovative solution is expected to help RMNI’s customers work better with their technology portfolio and should expand the company’s revenue stream.
RMNI’s revenue came in at $101.20 million for the second quarter that ended June 30, representing a 10.5% year-over-year growth. Its non-GAAP operating income grew 21.3% from the prior-year quarter to $11.95 million, while adjusted EBITDA rose 10.8% year-over-year to $11.02 million.
Analysts expect RMNI’s revenue for the third quarter ending September 2022 to be $102.42 million, indicating a 7.1% year-over-year growth. The company’s EPS for the same quarter is expected to be $0.12. RMNI also beat the consensus EPS estimates in each of the trailing four quarters.
RMNI has gained 2.3% intraday to close its last trading session at $4.93.
It is no surprise that RMNI has an overall A rating, which translates to Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Growth and Value. In the same industry, the stock is ranked #2.
Beyond what is stated above, we have also given RMNI grades for Momentum, Stability, and Sentiment. Get all RMNI ratings here.
Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications. Its products include OpenEdge, Developer Tools, Sitefinity, Corticon, DataDirect Connect, MOVEit, Chef, WhatsUp Gold, and Kemp Flowmon Network Visibility. The company sells its products to end users, independent software vendors, original equipment manufacturers, and system integrators.
On September 22, PRGS announced the expansion of its collaboration with Microsoft Corp. (MSFT) to enable Microsoft Azure customers to accelerate cloud migration in India with PRGS’ Chef DevSecOps automation tools. This should help the companies bring together two powerful tools to deliver a ‘cloud-first’ infrastructure quickly and securely.
PRGS’ revenue increased 3% year-over-year to $151.22 million for the third quarter that ended August 31, 2022. Its net cash flows from operating activities increased 12.6% year-over-year to $39.67 million. In the same period, the company’s net income and EPS stood at $21.80 million and $0.50, respectively.
For the quarter ending November 30, 2022, PRGS’ EPS and revenue are expected to increase 18.3% and 13% year-over-year to $1.09 and $162.41 million, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
The stock has gained 1.9% intraday to close the last trading session at $42.35.
PRGS’s POWR Ratings reflect solid prospects. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Growth and Value. It is ranked #3 in the Software – Application industry.
In addition to the POWR Rating grades stated above, you can see the other ratings for PRGS here (Momentum, Stability, and Sentiment).
Mitek Systems, Inc. (MITK)
MITK develops and sells mobile image capture and digital identity verification solutions internationally. The company’s offerings include Mobile Deposit, Mobile Verify, MiSnap, Check Reader, and Check Fraud Defender.
On June 22, the company introduced MiVIP, a MITK Verified Identity Platform, which is expected to provide companies a comprehensive and secure control, saving them time and money. MITK CEO Max Carnecchia stated, “Mitek’s new platform, MiVIP, is a culmination of our best technologies, our most recent acquisition, and our ongoing commitment to putting Mitek’s customers in control of their consumer experiences.”
MITK’s total revenue increased 23.8% year-over-year to $39.33 million in the fiscal quarter that ended June 30. Its non-GAAP net income and non-GAAP EPS came in at $10.19 million and $0.23, respectively.
Street expects MITK’s EPS to come in at $0.89 for the fiscal year ending September 2022, indicating a 17.1% year-over-year increase. Likewise, the revenue is expected to be $ 145.10 million, reflecting an improvement of 21.1% in the same period. MITK has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 5.4% to close its last trading session at $9.67.
MITK has an overall B rating, equating to a Buy in our POWR Ratings system. It also has a B grade for Growth, Value, and Quality. The stock is ranked #11 in the same industry.
Click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for MITK.
SNPS shares were trading at $308.97 per share on Thursday morning, down $4.19 (-1.34%). Year-to-date, SNPS has declined -16.15%, versus a -22.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.4 Software Stocks That Are Better Buys Than Adobe Right Now appeared first on StockNews.com