September's Top 4 Growth-Driven Software Stocks to Watch

The COVID-19 pandemic sped up digital transformation by several months and years. Enterprises across multiple end-use sectors have largely shifted toward automating and streamlining their business processes, fueling the demand for business software and solutions. Moreover, SaaS solutions are among the fastest-growing segments in the software industry.

A significant surge in the adoption of public & hybrid cloud-based services primarily contributes to the SaaS market growth. Amid this, quality growth-driven software stocks Palantir Technologies Inc. (PLTR), Twilio Inc. (TWLO), UiPath Inc. (PATH), and WM Technology, Inc. (MAPS) could be worth watching in September.

Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the software industry’s prospects.

Companies globally have accelerated the digitalization of their internal operations and customer and supply-chain interactions, boosting the software industry’s prospects. The rapid increase in the volume of enterprise data and the growing automation of business processes across end-use sectors like retail, healthcare, and manufacturing should drive the demand for enterprise software and services.

In addition, the growing deployment of business software and services across IT infrastructure to enable better decision-making, inventory cost reduction, enhanced profitability, and improved market position for businesses should propel the software industry’s growth.

According to a report by Grand View Research, the global business software and services market is expected to expand at 11.9% CAGR during the forecast period (2023-2030). The market is further poised to benefit from the growing usage of emerging technologies, including AI, blockchain, IoT, machine learning (ML), hybrid architecture, and extended reality.

Based on Gartner Digital Markets’ 2023 SMB Software Buying Trends Survey, more than two-thirds of businesses plan to spend more on technology and software in 2023. Moreover, over 57% of companies are early adopters of advanced technologies.

Meanwhile, Gartner forecasts worldwide software spending to increase 13.7% year-over-year to $922.75 billion this year.

Moreover, the increasing use of cloud platforms, offering benefits, including cost-effectiveness, flexibility, scalability, and mobility, has fueled the demand for cloud-based software solutions and services among organizations worldwide. The global Software-as-a-Service (SaaS) market size is projected to reach $908.21 billion by 2030, growing at a CAGR of 18.7%.

The growing integration of AI and ML with SaaS solutions to improve operational proficiency and intelligence across enterprises should drive the SaaS industry’s expansion. Also, SaaS is being deployed in content collaboration tools to enhance the streamlining of the data flow for content creation, collaborative processes, modification, and sharing of companies.

Given the industry tailwinds, it’s time to examine the fundamentals of three stocks to watch in the B-rated Software - SAAS industry, starting with the fourth in line.

Stock #4: UiPath Inc. (PATH)

PATH offers an end-to-end automation platform that provides several robotic process automation (RPA) solutions primarily in the United States, Romania, and Japan. Its platform combines artificial intelligence (AI) with desktop recording, bank-end mining of human activity and system logs, and intuitive visualization tools.

On August 29, PATH introduced a new connector for Google Cloud, which allows developers, data scientists, and engineers to harness the power of Generative AI to create automation and machine learning (ML) models more quickly. The connector offers curated activities, providing users with effortless access to the PaLM 2 large language model (LLM), including text generation.

Also, UiPath customers would benefit from integration within Google Workspace. This extended partnership between PATH and Google Cloud might significantly benefit the companies.

On August 23, PATH’s UiPath Orchestrator, UiPath Insights, UiPath Automation Hub, and their supporting services in the UiPath Automation Cloud™ Platform achieved HITRUST risk-based, 2-year certification demonstrating the highest level of information protection assurance. This achievement placed PATH in an exclusive group of organizations that earned this certification.

Also, in the same month, the company announced its latest AI updates with “Project Wingman,” allowing customers to create powerful automations from simple natural language prompts. “Project Wingman” is now available in a private preview for select customers. Such developments reflect PATH’s commitment to incorporate AI into its product offerings.

PATH’s revenue has grown at a 46.6% CAGR over the past three years, while its total assets have increased at a CAGR of 75.3%.

PATH’s revenue grew 18.1% year-over-year to $289.60 million for the first quarter that ended April 30, 2023. Its non-GAAP gross profit was $253.40 million, up 21.7% year-over-year. The company’s non-GAAP operating income was $48.24 million, compared to an operating loss of $10.86 million in the same quarter of 2022.

Furthermore, the company’s non-GAAP net income came in at $63.79 million and $0.11 per share, compared to a net loss of $17.47 million and $0.03 per share, respectively. During the quarter, its non-GAAP free cash flow stood at $72.71 million.

Analysts expect PATH’s revenue and EPS for the fiscal year (ending January 2024) to increase 19.6% and 143.5% year-over-year to $1.27 billion and $0.34, respectively. Moreover, the company surpassed the revenue and EPS estimates in each of the trailing four quarters.

PATH’s shares have gained 6.5% over the past six months and 28.6% year-to-date to close the last trading session at $15.81.

PATH’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C grade, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

PATH has a grade of B for Growth. It has a C grade for Value and Quality. In the B-rated Software - SAAS industry, it is ranked #20 out of 24 stocks.

Beyond what we stated above, we also have PATH’s ratings for Stability, Momentum, and Sentiment. Get all PATH ratings here.

Stock #3: Twilio Inc. (TWLO)

TWLO provides software and communications solutions in the United States and internationally. The company operates a cloud communications platform that allows developers to build, scale, and manage customer engagement within software applications.

On August 23, TWLO announced CustomerAI solutions that would unlock the power of AI for thousands of businesses. New predictive and generative AI tools and Customer Data Platform (CDP) innovations that underpin powerful AI use cases are among the launches.

Predictions and voice intelligence launches drive deeper, actionable understanding of customers, and new generative AI tools activate adaptive engagement in Twilio engages, flex, and segment. Also, AI-ready CDP innovations extend brands’ line of sight, enhancing customer profiles and powering real-time personalization. Such new launches might boost the company’s growth.

During the second quarter that ended June 30, 2023, TWLO’s revenues increased 10% year-over-year to $1.04 billion, and its gross profit grew 13.6% from the year-ago value to $505.76 million. Its non-GAAP operating income was $120.15 million, compared to a loss of $7.30 million for the second quarter of 2022.

In addition, the company’s non-GAAP net income attributable to common stockholders came in at $100.84 million and $0.54 per share, compared to a net loss of $19.25 million and $0.11 per share in the prior year’s quarter, respectively.

The consensus revenue estimate of $4.06 billion for the fiscal year (ending December 2023) reflects a 6.1% year-over-year improvement. Likewise, the company’s EPS for the ongoing year is expected to be $1.72, compared to a loss per share of $0.15 in the prior year. In addition, TWLO topped the consensus EPS estimates in three of the trailing four quarters.

For the fiscal year 2024, the company’s revenue and EPS are expected to grow 8.7% and 24.4% year-over-year to $4.41 billion and $2.14, respectively.

Shares of TWLO have gained 26.4% year-to-date to close the last trading session at $63.71.

TWLO’s POWR Ratings reflect mixed prospects. The stock has an overall C rating, which translates to a Neutral in our proprietary rating system.

TWLO has a grade of B for Growth and Sentiment. Also, it has a grade of C for Value and Momentum. It is ranked #19 among 24 stocks in the B-rated Software - SAAS industry.

In addition to the POWR Ratings I’ve just highlighted, you can see TWLO’s ratings for Stability and Quality here.

Stock #2: WM Technology, Inc. (MAPS)

MAPS offers e-commerce and compliance software solutions to retailers and brands in the cannabis market. It provides a Weedmaps marketplace that enables cannabis users to search for and browse cannabis products from retailers and brands. Also, it offers monthly subscription-based business software solutions, like WM Listings, WM Orders, WM Stores, WM Insights, and WM Connectors.

For the second quarter that ended June 30, 2023, MAPS’ average monthly paying clients was 5,609, compared to 5,537 from the prior-year period. Its operating income was $3.78 million versus $13.02 million in the same quarter of 2022. The company’s adjusted EBITDA was $10.23 million, compared to an adjusted EBITDA loss of $595 thousand a year earlier.

However, the company’s net income and income per share stood at $1.98 million and $0.01, declines of 90% and 92.3% year-over-year, respectively.

Analysts expect MAPS’ to decrease 10% year-over-year to $194.21 million for the fiscal year ending December 2023. However, the company’s revenue for the fiscal year 2024 is expected to grow 6.9% year-over-year to $207.64 million. Moreover, MAPS has topped the consensus revenue estimates in three of the trailing four quarters.

Shares of MAPS have gained 49.6% over the past month and 37.6% over the past six months to close the last trading session at $1.52.

MAPS’ POWR Ratings reflect mixed fundamentals. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.

MAPS has a B grade for Growth. It has a C grade for Quality and Sentiment. It is ranked #18 out of 24 stocks in the B-rated Software - SaaS industry.

To access additional ratings for MAPS’ Growth, Stability, Sentiment, and Momentum, click here.

Stock #1: Palantir Technologies Inc. (PLTR)

PLTR builds and deploys software platforms for the intelligence community in the United States to help in counterterrorism investigations and operations. The company’s offerings include Palantir Gotham, Palantir Foundry, and Palantir Apollo.

On August 9, PLTR and Azule Energy, a leading Angolan energy provider, entered a multi-year partnership to deploy cutting-edge software to optimize Azule Energy’s upstream production. PLTR’s Palantir Foundry would help Azule Energy manage its current 200,000 barrels of daily oil production and support its growth goal of 250,000 barrels per day.

This partnership is expected to expand PLTR’s presence in the industry, driving the company’s profitability and growth.

On August 4, PLTR and WesTrac Pty Ltd, one of the world’s largest Caterpillar® dealers and leading provider of heavy mobile equipment and aftermarket services to the Australian mining and construction sectors, announced a multi-year enterprise expansion of their partnership, which first began in 2021, to deploy Foundry across core operations.

The extended partnership would initially focus on deploying Foundry across WesTrac’s Component Rebuild Centres and to Inventory Management teams to boost overall efficiency and customer delivery for WesTrac. In addition to Foundry, WesTrac plans to explore AI solutions leveraging a suite of software, including Palantir’s new Artificial Intelligence Platform (AIP).

Over the past three years, PLTR’s revenue and total assets have grown at 31.4% and 28.1% CAGRs, respectively.

PLTR’s revenue increased 12.8% year-over-year to $533.32 million in the second quarter that ended June 30, 2023. The company’s adjusted income from operations stood at $135.04 million, up 25.2% year-over-year. Also, its adjusted EBITDA rose 27.2% from the year-ago value to $143.43 million.

Furthermore, the company’s adjusted net income attributable to common stockholders was $119.55 million or $0.05 per share, compared to a loss of $21.12 million or $0.01 during the previous year’s quarter. Its adjusted free cash flow was $96.03 million, an increase of 57.7% year-over-year.

Analysts expect PLTR’s revenue and EPS to increase 16.1% and 278.1% year-over-year to $2.21 billion and $0.23 for the fiscal year ending December 2023, respectively. Also, it surpassed the consensus revenue estimates in three of the trailing four quarters.

Additionally, for the fiscal year 2024, the company’s revenue and EPS are expected to grow 18.8% and 17.2% from the previous year to $2.63 billion and $0.27, respectively.

PLTR’s stock has gained 91.1% over the past six months and 94% over the past year to close the last trading session at $14.98.

PLTR’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, translating to a Neutral in our proprietary rating system.

The stock has a B grade for Growth and Quality. It has a C grade for Momentum. PLTR is ranked #17 in the same industry.

To see the other ratings of PLTR for Value, Quality, Stability, and Sentiment, click 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:

10 Stocks to SELL NOW! >

PLTR shares fell $14.98 (-100.00%) in premarket trading Friday. Year-to-date, PLTR has gained 133.33%, versus a 18.65% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

More...