From commerce to culture, software is digitizing every aspect of our lives. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 7.3% over the past six months. This performance is a stark contrast from the S&P 500’s 13.2% gain.
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 is one resilient software stock at the top of our wish list and two we’re steering clear of.
Two Software Stocks to Sell:
PubMatic (PUBM)
Market Cap: $467.2 million
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Do We Pass on PUBM?
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 96% net revenue retention rate
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 9.4 percentage points
PubMatic is trading at $10.06 per share, or 1.6x forward price-to-sales. Check out our free in-depth research report to learn more about why PUBM doesn’t pass our bar.
Oracle (ORCL)
Market Cap: $521.9 billion
Starting as a database company in 1977 and now powering mission-critical systems across the globe, Oracle (NYSE: ORCL) provides enterprise software and hardware products and services that help businesses manage their information technology needs.
Why Are We Cautious About ORCL?
- Annual sales growth of 10.1% over the last five years lagged behind its software peers as its large revenue base made it difficult to generate incremental demand
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Oracle’s stock price of $181.19 implies a valuation ratio of 6.6x forward price-to-sales. Read our free research report to see why you should think twice about including ORCL in your portfolio.
One Software Stock to Watch:
Nutanix (NTNX)
Market Cap: $13 billion
Originally pioneering hyperconverged infrastructure to break down traditional data center silos, Nutanix (NASDAQ: NTNX) provides a unified software platform that enables organizations to run applications and manage data across private, public, and hybrid cloud environments.
Why Does NTNX Stand Out?
- Superior software functionality and low servicing costs are reflected in its best-in-class gross margin of 87.1%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- NTNX is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
At $47.84 per share, Nutanix trades at 4.6x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
