The software sector has expanded rapidly in recent years. However, despite robust demand, the industry is under pressure due to macroeconomic headwinds and layoffs. Hence, let’s take a look at software stocks Ideanomics, Inc. (IDEX), DatChat, Inc. (DATS), and Versus Systems Inc. (VS) and discuss why it could be best to steer clear of these stocks now.
Tight monetary policies to bring down steep inflation and decline in financial conditions have impacted economic growth to quite a large extent. Recently, the International Monetary Fund (IMF) has predicted a slowdown in global growth. Economic headwinds could hamper the growth prospects of the software industry.
According to the president of International Data Corporation, global Information Technology (IT) spending in 2023 will be significantly impacted by a recession expected in the second half of the year. Global IT spending is expected to slow in 2023 as rising interest rates affect companies’ budgets.
Moreover, technology companies have increased the rate of layoffs in 2023 due to a sluggish global economy and weak revenue growth. According to data provided by Layoffs.fyi, 562 technology companies have laid off 168,243 employees this year, compared to 164,411 layoffs last year.
Additionally, the companies that rely on global supply chains for their products and components are experiencing disruptions as a result of factors such as trade disputes.
Against this backdrop, let’s take a look at the featured stocks:
Ideanomics, Inc. (IDEX)
IDEX, through its subsidiaries, develops zero-emission mobility solutions for the off-highway and on-highway commercial vehicle markets in Asia, Europe, and the United States.
IDEX’s trailing-12-month net income margin of negative 258.27% compares to the industry average of 6.50%. Also, its trailing-12-month EBIT margin of negative 159.60% compares to the industry average of 9.72%.
IDEX’s total revenue decreased 11.5% year-over-year to $100.94 million for the fourth quarter that ended December 31, 2022. Its loss from operations came in at $274.81 million, up 12.7% from the prior-year quarter. The company’s net loss attributable to common shareholders amounted to $260.69 million, increasing marginally year-over-year.
Analysts expect IDEX’s EPS to be negative $0.24 in the fiscal year 2023 and negative $0.10 in the fiscal year 2024. It failed to surpass the consensus EPS estimates in all four trailing quarters. The stock has lost 89.7% over the past year to close the last trading session at $0.10.
IDEX’s poor fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IDEX has an F grade for Value and Quality and a D for Stability. It is ranked #146 out of 152 stocks in the F-rated Software – Application industry. Click here to access POWR Ratings for IDEX for Growth, Sentiment, and Momentum.
DatChat, Inc. (DATS)
DATS is a communication software company that develops mobile messaging applications. The company offers DatChat Messenger & Private Social Network, a mobile application that allows users to communicate with privacy and protection.
DATS’ trailing-12-month ROTA of negative 92.56% compares to the industry average of 0.70%. Also, its trailing-12-month ROCE of negative 74.38% compares to the industry average of 2.65%.
DATS’ total operating expenses increased 13.2% year-over-year to $12.27 billion for the year ended December 31, 2022. Its loss from operations came in at $12.23 million, up 12.8% year-over-year. The company’s net loss amounted to $12.14 billion, up 12.1% year-over-year.
The stock has lost 70.6% over the past year to close the last trading session at $0.54.
It’s no surprise that DATS has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Value and Stability and a D for Growth, Quality, and Momentum. It is ranked #144 in the same industry. We have also rated DATS for Sentiment. Get all the DATS ratings here.
Versus Systems Inc. (VS)
Headquartered in Vancouver, Canada, VS develops and operates a business-to-business software platform in the United States and Canada.
VS’s trailing-12-month ROTA of negative 247.23% compares to the industry average of 1.32%. Also, its trailing-12-month ROTC of negative 67.66% compares to the industry average of 3.54%.
During the fourth quarter (ended December 31, 2022), VS’ sales decreased 44.7% year-over-year to $217.61 million. The company’s loss for the period widened by 366.5% from the year-ago value to $11.67 billion. Also, its loss per share came in at $5.76, widening 540% year-over-year.
Street expects VS’ EPS to be negative $1.20 for the fiscal year 2023 and negative $0.79 for the fiscal year 2024. Over the past year, the stock has declined 97% to close the last trading session at $0.57.
VS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability, Sentiment, and Quality and a D for Value. Within the same industry, it is ranked last. To see the VS’ ratings for Growth and Momentum, click here.
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IDEX shares were trading at $0.09 per share on Wednesday morning, down $0.00 (-2.80%). Year-to-date, IDEX has declined -45.12%, versus a 7.70% 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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