The software sector is constantly making advancements along with high demand for scalable solutions, flexible technology architecture, cloud operations capabilities, and building a talent pool. Hence, it could be wise for investors to invest in fundamentally strong software stocks such as Splunk Inc. (SPLK), DocuSign, Inc. (DOCU), and Park City Group, Inc. (PCYG).
The rise of remote work setup and the hybrid work model has increasingly led organizations to adopt digital solutions. This has sparked increased usage of cloud-based solutions, a growing demand for digital transformations, and a heightened focus on cybersecurity across various sectors.
As per estimates provided by Gartner, Inc. (IT), worldwide IT spending is expected to reach $4.6 trillion in 2023, an increase of 5.5% from 2022. Moreover, the spending on software is forecasted to hit $1 trillion by the following year.
Propelled by this, the global software market is expected to expand at a CAGR of 11.5% from 2023 to 2023. In addition, the cloud computing market is projected to surpass around $2.32 trillion by 2032, registering a CAGR of 16% from 2023 to 2032.
Furthermore, according to ReportLinker’s survey across global markets, the Software as a Service (SaaS) market is expected to grow at a CAGR of 6.6%, reaching $328.03 billion in 2027, indicating Artificial Intelligence (AI) and Machine Learning (ML) to be the differentiating factors driving the growth of the SaaS market.
Given these solid growth projections, the software industry is expected to grow steadily in the upcoming years. Hence, it could be worth considering fundamentally robust stocks like SPLK, DOCU, and PCYG to garner significant returns.
Let’s take a look at these stocks.
Splunk Inc. (SPLK)
SPLK is engaged in developing and marketing cloud services and licensed software solutions. It offers a unified security and observability platform, which is comprised of Splunk Security which helps security leaders fortify their organization’s digital resilience by mitigating cyber risk and meeting compliance requirements.
On July 18, SPLK introduced a new generative AI app, Splunk AI Assistant, ensuring better customer connectivity through an interactive chat experience. The AI enabler will enhance the detection of anomalies through automation. With this new-age innovation, the company should generate interest among various industry sectors, thereby improving its customer base and profitability.
On July 17, SPLK announced its strategic partnership with Microsoft Corporation (MSFT) to build its enterprise security and observability offerings on Microsoft Azure. Within this agreement, MSFT will collaborate with the company to develop a differentiated product offering by leveraging Microsoft Azure for SPLK’s cloud products.
On this note, the company is anticipated to enjoy a competitive advantage through the existing MSFT customer base and help them get the best-in-class solutions.
In the fiscal first quarter (ended April 30, 2023), SPLK’s total revenues increased by 11.5% year-over-year to $751.51 million, while its gross profit improved by 15.3% from the year-ago value to $544.27 million.
The company’s non-GAAP operating income amounted to $24.96 million, compared to a non-GAAP operating loss of $57.25 million in the prior-year period. In addition, its non-GAAP net income came in at $34.14 million and $0.18 per share versus an adjusted net loss of $52.09 million and $0.32 per share in the prior-year period, respectively.
Street expects SPLK’s EPS to grow 405.4% year-over-year for the fiscal second quarter (ending July 2023) to $0.45. Its revenue is expected to increase by 11.2% year-over-year to $888.49 million.
Its EPS and revenue are projected to reach $3.21 and $3.91 billion in the current year, registering increases of 19.3% and 6.9% year-over-year, respectively. Moreover, it surpassed the revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 34.1% over the past nine months to close the last trading session at $104.79.
SPLK’s POWR Ratings reflect this favorable outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. In the 26-stock B-rated Software – SAAS industry, it is ranked #5. To see additional ratings for Value, Momentum, Stability, and Sentiment for SPLK, click here.
DocuSign, Inc. (DOCU)
DOCU provides cloud-based electronic signature solutions, enabling an agreement to be signed electronically on various devices from virtually anywhere in the world. The company offers DocuSign Agreement Cloud, a cloud software platform that automates and connects the entire agreement process.
During the fiscal first quarter that ended on April 30, 2023, DOCU’s total revenue increased 12.3% year-over-year to $661.39 million, while its gross profit improved by 15% from the year-ago value to $524.90 million.
Non-GAAP income from operations stood at $175.76 million, up 71.9% year-over-year. Also, its non-GAAP net income came in at $150.21 million and $0.72 per share, representing increases of 93.9% and 89.5% year-over-year, respectively.
Analysts estimate DOCU’s revenue to increase 8.8% year-over-year to $677.23 million for the fiscal second quarter (ending July 2023). Its EPS estimate of $0.65 for the ongoing quarter reflects a 48.8% year-over-year growth. Additionally, it topped the revenue and EPS estimates in all the trailing four quarters, which is promising.
DOCU’s shares have gained 10.8% over the past nine months to close the last trading session at $51.72.
DOCU’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and a B for Value and Quality. Within the same B-rated industry, it is ranked #4.
Click here to see the other ratings of DOCU for Momentum, Stability, and Sentiment.
Park City Group, Inc. (PCYG)
PCYG is a software-as-a-service provider engaged in designing, developing, and marketing proprietary software products. It offers cloud-based applications and services that address e-commerce, supply chain, food safety, and compliance activities.
On July 19, ReposiTrak, a subsidiary of the company, announced the launch of its ReposiTrak Recall Management Solution for a safer food supply chain. The solution is designed to provide real visibility to inventory levels and locations from distribution centers to stores.
The new launch, built over a strong infrastructure, is expected to help safeguard consumers, protect brand reputations, and improve the existing recall management process.
On June 20, PCYG declared a quarterly dividend of $0.015 per share, payable to its shareholders on August 1, 2023. The company’s four-year average dividend yield is 0.09%, and its annual dividend translates to a 0.66% yield on the prevailing prices.
PCYG’s revenue increased 5.9% year-over-year to $4.82 million in the fiscal third quarter that ended on March 31, 2023, while its income from operations grew 29.3% from the year-ago value to $1.52 million.
The company’s net income applicable to common shareholders amounted to $1.52 million and $0.08 per share, representing increases of 61.2% and 60% year-over-year, respectively. Also, its net cash from operations increased by 75.2% year-over-year to $7.06 million.
The consensus EPS estimate of $0.07 for the fourth quarter (ended June 30, 2023) represents a 22.6% improvement year-over-year. The consensus revenue estimate of $4.78 million for the same period indicates a 3.8% increase from the prior-year period. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 87.2% to close the last trading session at $9.14. Also, it has gained 84.6% year-to-date.
It’s no surprise that PCYG has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Stability and Sentiment. Out of 26 stocks in the same industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have PCYG’s ratings for Growth, Value, and Momentum. Get all PCYG ratings here.
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SPLK shares were trading at $104.33 per share on Friday afternoon, down $0.46 (-0.44%). Year-to-date, SPLK has gained 21.19%, versus a 19.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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