Despite macroeconomic challenges, the software industry is thriving with consistent growth, innovation, and adaptation to market demands and emerging technologies. Given the industry’s growth prospects, investors could consider buying fundamentally sound software stocks SS&C Technologies Holdings, Inc. (SSNC), Yext, Inc. (YEXT) and MiX Telematics Limited (MIXT) for solid returns this week.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
Artificial intelligence (AI) has transformed the landscape of several sectors throughout the world. The growing demand for enhanced business IoT solutions, autonomous vehicles, and robots is expected to drive the growth of the artificial intelligence software market.
The integration of AI technology has enabled businesses to streamline operations and increase productivity. The AI software industry is predicted to reach $850.60 billion by 2030, growing at a 36% CAGR.
According to Statista, software market revenue is expected to hit $698 billion this year. Moreover, the sector’s revenue is expected to grow at a 5.3% CAGR over the next four years to $858.10 billion by 2028.
Moreover, investors’ interest in software stocks is evident from the SPDR S&P Software & Services ETF’s (XSW) 26.6% returns over the past nine months and 22.7% over the past three months.
Let us dive deeper into the fundamentals of the featured stocks:
SS&C Technologies Holdings, Inc. (SSNC)
SSNC delivers software products and services to streamline operations in finance and healthcare. Its solutions automate intricate business processes, aiding clients with information processing. The company controls a technology stack encompassing securities accounting, front-office and back-office functions.
SSNC’s forward EV/EBITDA multiple of 10.34 is 11% lower than the industry average of 11.61. Its forward EV/EBIT multiple of 10.67% is 34.9% lower than the industry average of 16.39.
SSNC’s trailing-12-month EBIT margin of 22.13% is 126.2% higher than the industry average of 9.78%. Its trailing-12-month EBITDA margin of 33.16% is 142.7% higher than the industry average of 13.66%.
During the fiscal third quarter that ended September 30, 2023, SSNC’s adjusted revenue increased 3.4% year-over-year to $1.37 billion. Its adjusted consolidated EBITDA grew 6.4% from the year-ago value to $533.90 million. In addition, adjusted EPS attributable to SSNC came in at $1.17, up 1.7% year-over-year improvement.
Analysts expect SSNC’s revenue to increase 4% year-over-year to $5.70 billion for the fiscal year ending December 2024. Its EPS is expected to grow 11.4% year-over-year to $5.12 for the same period. Shares of SSNC has gained 22.3% over the past three months to close the last trading session at $60.94.
SSNC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SSNC also has an A grade for Momentum and a B for Stability and Value. It is ranked #15 out of 132 stocks in the Software - Application industry. Click here for the additional POWR Ratings for Growth, Sentiment and Quality for SSNC.
Yext, Inc. (YEXT)
YEXT offers a cloud-based platform enabling businesses to control and update their information across various online platforms, helping them answer consumer questions and manage online reviews. The company primarily serves the healthcare, retail, and financial services industries.
YEXT’s forward non-GAAP P/E multiple of 20.17 is 19.6% lower than the industry average of 25.09. Its forward EV/Sales multiple of 1.68% is 42.7% lower than the industry average of 2.93.
YEXT’s trailing-12-month gross profit margin of 77.22% is 57.9% higher than the industry average of 48.91%. Its trailing-12-month levered FCF margin of 14.60% is 63.7% higher than the industry average of 8.92%.
During the fiscal 2024 third quarter that ended October 31, 2023, YEXT’s revenue increased marginally year-over-year to $101.16 million. Its adjusted EBITDA grew 90.7% from the year-ago quarter to $13.51 million.
Furthermore, YEXT’s non-GAAP net income attributable to common stockholders stood at $11.29 million and $0.09 per share up 349.4% and 350% year-over-year, respectively.
The consensus revenue estimate of $403.44 million for the year ending January 2024 represents a marginal increase year-over-year. Its EPS is expected to come in at $0.30 for the same period. It surpassed EPS estimate in three of the four trailing quarters. YEXT’s shares have gained 2.9% over the past month to close the last trading session at $6.05.
YEXT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 out of 43 stocks in the B-rated Software – Business industry. It has an A grade for Growth and a B for Value and Quality. To see additional YEXT’s ratings for Stability, Sentiment and Momentum, click here.
MiX Telematics Limited (MIXT)
MIXT and its subsidiaries provide fleet and mobile asset management solutions through a software-as-a-service (SaaS) delivery model. Its offers include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
MIXT’s forward non-GAAP P/E multiple of 21.31 is 15.1% lower than the industry average of 25.09. Its forward EV/EBITDA multiple of 5.57% is 64.5% lower than the industry average of 15.71.
MIXT’s trailing-12-month EBIT margin of 10.98% is 127.7% higher than the industry average of 4.82%. Its trailing-12-month EBITDA margin of 22.53% is 142.6% higher than the industry average of 9.28%.
For the fiscal second quarter of 2024 ended September 30, 2023, MIXT’s total revenues increased 7.1% year-over-year to $37.76 million. Its gross profit increased 5.3% over the prior-year quarter to $23.28 million. Also, its adjusted EBITDA increased 41.5% year-over-year to $8.50 million.
Street expects MIXT’s revenue to increase 2.2% year-over-year to $147.95 Million for the fiscal year ending March 2024. Its EPS is expected to grow 13.9% year-over-year to $0.41 for the same period. Shares of MIXT has gained 61.9% over the past three months to close the last trading session at $8.74.
MIXT has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value. It is ranked #2 out of 21 stocks in the A-rated Software – SAAS industry.
Beyond what is stated above, we’ve also rated MIXT for Growth, Momentum, Stability, Sentiment and Quality. Get all MIXT ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
SSNC shares were trading at $60.81 per share on Thursday morning, down $0.13 (-0.21%). Year-to-date, SSNC has declined -0.49%, versus a 2.65% 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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