The software industry has proven its resilience with constant growth, innovation, and adaptability to shifting market demands and evolving technology. The software sector is positioned to greatly impact businesses and society as it grows with cutting-edge products and services.
Against this backdrop, investors could consider buying fundamentally strong software stocks Informatica Inc. (INFA), CCC Intelligent Solutions Holdings Inc. (CCCS), and Radware Ltd. (RDWR), given their solid upside potential. Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
The software industry is expected to grow as demand for digital solutions rises due to technological advancements such as machine learning and cloud computing. According to Gartner, spending on software is projected to increase 13.9% year-over-year to $1.04 trillion.
The rapid digitalization of operations, the adoption of cloud solutions, and the proliferation of smart devices have increased cybersecurity threats, enhancing organizations' susceptibility to them. The global cybersecurity market is estimated to expand at a 11% CAGR to reach $533.90 billion by 2032.
In addition, the growing popularity of public cloud-based services is driving the demand for Software-as-a-Service (SaaS). The SaaS market is booming globally due to the increased adoption of cloud-based solutions and investments in advanced technologies like AI and IoT. The global Software as a Service (SaaS) market is estimated to reach $1.23 trillion by 2032, growing at a CAGR of 18.4%.
According to Statista, software market revenue is expected to hit $698.80 billion in 2024. Moreover, the sector’s revenue is expected to grow at a 5.3% CAGR to $858.10 billion by 2028. Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 31.1% over the past year.
In light of these encouraging trends, let’s look at the fundamentals of the three above-mentioned software stocks.
Informatica Inc. (INFA)
INFA offers AI-powered data management solutions for enterprise-scale operations, including data integration, API management, and governance products. Its platform unifies data across multi-cloud and hybrid systems, facilitating seamless connectivity and management.
On April 10, 2024, INFA announced new solutions and partnerships with Google Cloud, such as Informatica's Master Data Management (MDM) Extension for Google Cloud BigQuery. This enables faster access to reliable data for analytics and AI applications in retail, finance, and healthcare industries.
In terms of the trailing-12-month gross profit margin, INFA’s 79.53% is 61.9% higher than the 49.13% industry average. Likewise, its 22.50% levered FCF margin is 143.9% higher than the 9.22% industry average. Additionally, its 15.57% trailing-12-month EBITDA margin is 59.5% higher than the industry average of 9.76%.
During the fourth quarter, which ended December 31, 2023, INFA’s total revenues rose 11.6% year-over-year to $445.18 million. The company’s non-GAAP net income and net income per share grew 41.8% and 33.3% from the prior-year quarter to $97.30 million and $0.32, respectively. Also, its adjusted EBITDA increased 40.6% year-over-year to $166.42 million.
For the quarter ended March 31, 2024, INFA’s revenue and EPS are expected to increase 6.1% and 35% year-over-year to $387.65 million and $0.20, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 122.3% over the past year to close the last trading session at $35.08. Wall Street analysts expect the stock to hit $38.92 in the near term, indicating a potential upside of 9.5%.
INFA’s POWR Ratings reflect this promising outlook. It 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.
INFA has an A grade for Growth and a B for Quality. Within the A-rated Software - SAAS industry, it is ranked #4 out of 18 stocks. To see INFA’s additional ratings for Value, Momentum, Stability, and Sentiment, click here.
CCC Intelligent Solutions Holdings Inc. (CCCS)
CCCS provides cloud-based SaaS for property and casualty insurance in the US and China, streamlining digital workflows and leveraging AI. Its platform connects insurers, repairers, and other stakeholders for efficient collaboration and commerce.
CCCS’ trailing-12-month CAPEX / Sales of 6.35% is 172.9% higher than the industry average of 2.33%. Likewise, the stock’s trailing-12-month EBITDA margin of 19.36% is 98.3% higher than the industry average of 9.76%. Additionally, its 6.79% trailing-12-month EBIT margin is 43.4% higher than the industry average of 4.73%.
For the fiscal fourth quarter, which ended December 31, 2023, CCCS’ revenues increased 12% year-over-year to $228.60 million. The company’s adjusted operating income and net income grew 25.6% and 34.2% from a year-ago quarter to $58.99 million and $90.65 million, respectively. Its adjusted EBITDA increased 24.9% from the previous year’s quarter to $100.05 million.
Analysts expect CCCS’ EPS and revenue for the quarter ended March 31, 2024, to increase 20.7% and 9.9% year-over-year to $0.08 and $225.15 million, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
CCCS’ shares have gained 28.9% over the past year to close the last trading session at $11.42. Wall Street analysts expect the stock to reach $14.25 in the near term, indicating a potential upside of 24%.
It’s no surprise that CCCS has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Growth and a B for Momentum and Sentiment. It is ranked #6 in the same industry. Beyond what is stated above, we’ve also rated CCCS for Value, Stability, and Quality. Get all CCCS ratings here.
Radware Ltd. (RDWR)
Headquartered in Tel Aviv, Israel, RDWR develops, manufactures, and markets cyber security and application delivery solutions for applications in cloud, on-premise, and software-defined data centers worldwide.
In terms of the trailing-12-month gross profit margin, RDWR’s 80.21% is 63.3% higher than the 49.13% industry average.
RDWR’s revenues and non-GAAP gross profit for the fiscal fourth quarter that ended December 31, 2023, stood at $65.03 million and $53.31 million, respectively. The company’s non-GAAP operating income stood at $3.40 million.
Its non-GAAP net income and net earnings per share stood at $5.45 million and $0.13, respectively. Its adjusted EBITDA stood at $5.43 million. As of December 31, 2023, RDWR’s current assets stood at $375.11 million, compared to $334.42 million as of December 31, 2022.
Street expects RDWR’s revenue and EPS for the quarter ending June 30, 2024, to increase marginally and 52.5% year-over-year to $65.75 million and $0.15, respectively.
Over the past six months, the stock has gained 1.3% to close the last trading session at $16.26. Wall Street analysts expect the stock to reach $22 in the near term, indicating a potential upside of 35.3%.
RDWR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality. It is ranked #5 out of 22 stocks in the B-rated Software - Security industry. Click here to see RDWR's ratings for Growth, Value, Momentum, Stability, and Sentiment.
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INFA shares were trading at $35.05 per share on Friday morning, down $0.03 (-0.09%). Year-to-date, INFA has gained 23.46%, versus a 5.07% 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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