The software industry is booming thanks to the widespread adoption of innovative software solutions across sectors worldwide. Key trends, including the enhanced popularity of cloud-based services, integration of AI and automation, proliferation of IoT devices, and demand for cybersecurity solutions, are shaping the industry’s prospects.
Amid this backdrop, investors could consider buying fundamentally sound software stocks UiPath Inc. (PATH), Twilio Inc. (TWLO), and Amdocs Limited (DOX), which are on the verge of skyrocketing.
Businesses rely on software to streamline operations, improve customer experiences, obtain data-driven insights, and safeguard their systems as they adapt to and compete in the dynamic digital landscape. Hence, the software industry’s growth trajectory is shaped by the enduring force of digital transformation worldwide.
The U.S. software market size is estimated to grow at a CAGR of around 7.2% by 2030. Demand for software drives growth in several categories, such as AI, cloud computing, cybersecurity, customer relationship management (CRM), and enterprise resource planning (ERP).
Moreover, with the rapid adoption of public and hybrid cloud-based solutions, integration with other tools, and centralized data-driven analytics, the Software as a Service (SaaS) industry is expected to witness substantial growth. The global SaaS market is projected to reach $1.23 trillion by 2032, growing at a CAGR of 18.4% during the forecast (2024-2032).
Furthermore, enterprise software and services are widely utilized in end-use industries such as BFSI, government, healthcare, manufacturing, and retail as they simplify corporate operations. Therefore, the global business software and services market is expected to total $1.15 trillion by 2030, expanding at a CAGR of 11.9%.
Considering the industry’s bright growth prospects, let’s take a look at the fundamentals of the three best software stocks: PATH, TWLO, and DOX.
UiPath Inc. (PATH)
PATH provides an end-to-end automation platform that offers a range of robotic process automation (RPA) solutions internationally. The company provides a set of interrelated software solutions to build, manage, run, engage, measure, and govern automation within the organization.
On March 26, 2024, PATH’s UiPath Automation Cloud™ Public Sector attained authorized status in the Federal Risk and Authorization Management Program (FedRAMP®), the entity responsible for standardizing security and risk assessment for cloud services accessed by federal government agencies. This is a significant milestone for the company.
On March 6, PATH announced that the Ministry of Tourism of the Kingdom of Saudi Arabia started using the UiPath Business Automation Platform to further its national tourism strategy of thriving as a global destination and making tourism a leading industry in its dynamic and diverse economy.
Also, on February 29, PATH and Google Cloud announced an expanded partnership to enable customers to transform their enterprises with AI-powered automation.
PATH will be available as a Premier Level partner to facilitate Google Cloud customers’ purchase of the UiPath Business Automation Platform. This makes it easy for customers to install and advance their automation initiatives on Google Cloud infrastructure.
PATH’s trailing-12-month gross profit margin of 85.09% is 73.4% higher than the industry average of 49.06%. Likewise, the stock’s trailing-12-month levered FCF margin of 26.39% is 160.6% higher than the industry average of 10.13%.
PATH’s total revenue and non-GAAP gross profit for the fourth quarter that ended January 31, 2024, increased 31.3% and 34% year-over-year to $405.25 million and $360.07 million, respectively. Its non-GAAP net income and net income per share stood at $128.51 million and $0.22, up 55.4% and 46.7% from the prior-year quarter, respectively.
Street expects PATH’s revenue for the fiscal 2025 first quarter (ended April 2024) to increase 15% year-over-year to $333 million. Similarly, the consensus EPS estimate of $0.12 for the same quarter represents a 5.8% increase year-over-year. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of PATH have gained 41.8% over the past year to close the last trading session at $20.20.
PATH’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PATH has an A grade for Growth and a B for Sentiment and Quality. It is ranked #8 among 18 stocks in the A-rated Software - SAAS industry.
Click here to access the additional PATH ratings (Momentum, Stability, and Value).
Twilio Inc. (TWLO)
TWLO offers customer engagement platform solutions worldwide. It operates through two segments: Twilio Communications and Twilio Segment. It also provides software products to build direct, personalized relationships with its end users, like a platform that offers tools for first-party data by unifying real-time information.
On March 27, 2024, TWLO launched two innovations within Twilio Flex, the cloud-based digital engagement solution, Unified Profiles and Agent Copilot. Unified Profiles offers businesses a native data layer powered by Segment, facilitating the collection and activation of real-time, consented data to personalize interactions.
Agent Copilot leverages this data with AI to empower employees with automation and enhance productivity. This launch signifies the first of three products Twilio plans to introduce to the market in 2024, which will seamlessly integrate Segment’s customer data into its Communication products.
TWLO’s trailing-12-month gross profit margin of 50.02% is higher than the industry average of 49.06%. Also, the stock’s trailing-12-month levered FCF margin of 18.27% is 80.3% higher than the industry average of 10.13%.
During the first quarter that ended March 31, 2024, TWLO’s revenue increased 4% year-over-year to $1.05 billion. It reported a non-GAAP income from operations of $159.61 million, up 53.8% from the prior year’s quarter. The company’s non-GAAP net income came in at $146.34 million, or $0.80 per share, up 65.8% and 70.2% year-over-year, respectively.
Analysts expect TWLO’s revenue for the second quarter (ending June 2024) to increase 1.8% year-over-year to $1.06 billion. Street expects the company’s EPS to grow 29.5% year-over-year to $0.70 for the same period. Moreover, TWLO has surpassed consensus EPS and revenue estimates in each of the trailing four quarters.
TWLO’s stock has soared 35.8% over the past year to close the last trading session at $62.22.
TWLO’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.
The stock has a B grade for Growth, Value, and Sentiment. TWLO is ranked #7 out of 18 stocks in the Software-SAAS industry.
Beyond what is stated above, we’ve also rated TWLO for Quality, Stability, and Momentum. Get all TWLO ratings here.
Amdocs Limited (DOX)
DOX provides global software and service solutions, mainly focusing on cloud-based offerings for the communications, entertainment, and media sectors. Its portfolio includes CES23, a customer experience suite for 5G and cloud-native services, and modular billing, revenue management, and network automation solutions.
On May 8, 2024, DOX signed a multi-year contract with Colt Technology Services, the digital infrastructure company, to migrate and transform its network inventory ecosystem.
This agreement entails DOX offering migration services per Colt's timeline, streamlining inventory systems after Colt acquired Lumen's EMEA business, and collaboratively evolving the unified Amdocs Inventory platform.
On the same day, DOX announced that Paramount Global (PARA) had chosen Vubiquity, an Amdocs subsidiary, to take over all operational activities and affiliate management for MTV in Japan under a new licensing agreement. Vubiquity will oversee all operational facets of the MTV Japan linear channel, aiming to complete the transition by the end of June 2024.
DOX’s trailing-12-month EBIT margin of 14.82% is 231.2% higher than the industry average of 4.47%. Also, the stock’s trailing-12-month EBITDA margin of 18.65% is 92.2% higher than the industry average of 9.71%. Its trailing-12-month net income margin of 10.62% is 348.3% higher than the industry average of 2.37%.
In the second quarter that ended March 31, 2024, DOX’s revenue increased 2.5% year-over-year to $1.25 billion. The company’s non-GAAP operating income and net income grew 5.4% and 2.4% from the previous year’s quarter to $229.43 million and $183.62 million, respectively. Also, its non-GAAP EPS rose 6.1% from the year-ago value to $1.56.
Analysts expect DOX’s revenue and EPS for the fiscal third quarter (ending June 2024) to increase 1.7% and 3.1% year-over-year to $1.26 billion and $1.62, respectively. Additionally, the company has topped the consensus revenue estimates in each of the trailing four quarters, which is remarkable.
Shares of DOX have gained 3.3% over the past six months to close the last trading session at $82.07.
DOX’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
DOX has a B grade for Stability and Quality. It is ranked #12 out of 43 stocks in the B-rated Software - Business industry.
In addition to the POWR Ratings highlighted above, one can access DOX’s ratings for Value, Momentum, Growth, and Sentiment here.
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PATH shares rose $0.10 (+0.50%) in premarket trading Wednesday. Year-to-date, PATH has declined -18.68%, versus a 10.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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