Software is rapidly reducing operating expenses for businesses. This secular theme makes SaaS companies attractive investment candidates but also comes with higher valuations that cause volatility. Unfortunately, the rich prices have haunted them over the past six months as the industry has shed 11%. This drop was worse than the S&P 500’s 3.6% loss.

However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. On that note, here are two software stocks boasting durable advantages and one that may face trouble.

One Software Stock to Sell:

Tenable (TENB)

Market Cap: $3.90 billion

Founded in 2002 by three cybersecurity veterans, Tenable (NASDAQ: TENB) provides software as a service that helps companies understand where they are exposed to cyber security risk and how to reduce it.

Why Are We Wary of TENB?

1. Annual revenue growth of 16.9% over the last three years was below our standards for the software sector
2. Estimated sales growth of 7.5% for the next 12 months implies demand will slow from its three-year trend
3. Suboptimal cost structure is highlighted by its history of operating losses

Tenable’s stock price of $32.66 implies a valuation ratio of 3.9x forward price-to-sales. To fully understand why you should be careful with TENB, check out our full research report (it’s free).

Two Software Stocks to Buy:

Cloudflare (NET)

Market Cap: $54.78 billion

Founded by two grad students of Harvard Business School, Cloudflare (NYSE: NET) is a software-as-a-service platform that helps improve the security, reliability, and loading times of internet applications.

Why Are We Bullish on NET?

1. Billings have averaged 27.9% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
2. Market share will likely rise over the next 12 months as its expected revenue growth of 25.4% is robust
3. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently

At $157.52 per share, Cloudflare trades at 24.6x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.

Palantir (PLTR)

Market Cap: $291 billion

Started by Peter Thiel after seeing US defence agencies struggle in the aftermath of the 2001 terrorist attacks, Palantir (NYSE: PLTR) offers software as a service platform that helps government agencies and large enterprises use data to make better decisions.

Why Is PLTR a Top Pick?

1. Billings growth has averaged 38.6% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
2. User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
3. Robust free cash flow margin of 47.2% gives it many options for capital deployment

Palantir is trading at $123.63 per share, or 75.8x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.