Cutting-edge technologies like SaaS, generative AI, Web3, and the metaverse shape the software industry’s prospects. So, investors could consider investing in under-$25 software stocks Consensus Cloud Solutions, Inc. (CCSI), Informatica Inc. (INFA), and Vimeo, Inc. (VMEO), which possess solid growth prospects.
In the fast-evolving software landscape, cloud computing is at the forefront of the next phase of digital business transformation. According to Gartner, global spending on public cloud services is set to increase by 21.7% year-over-year, reaching $597.3 billion this year.
As a result, all cloud market segments are expected to witness healthy growth this year, with Infrastructure-as-a-Service (IaaS) likely to rise by 30.9%, followed by Platform-as-a-Service (PaaS) at 24.1%. Software-as-a-Service (SaaS) remains the largest segment in terms of end-user spending, with a projected growth of 17.9% to reach $197 billion this year.
In addition, SaaS solutions are gaining popularity for cost reduction and scalability. SaaS collaboration platforms are becoming increasingly popular, offering a central location for employees to share files, communicate with colleagues, and collaborate on projects.
As per Grand View Research, the global SaaS market is projected to grow at a CAGR of 13.7% until 2030.
Furthermore, increasing investments in advanced AI is a significant driver for the software market's growth. As AI is highly efficient in reducing human effort across fields, from healthcare to defense, many leading companies are introducing new AI software solutions.
The AI software market is expected to reach approximately $1.09 trillion by 2032, growing at a CAGR of 23%.
Considering these conducive trends, let’s analyze the fundamental aspects of three Software – SAAS industry picks, beginning with the third choice.
Stock #3: Consensus Cloud Solutions, Inc. (CCSI)
CCSI and its subsidiaries provide information delivery services with a software-as-a-service platform. It serves the healthcare, government, financial services, law, and education industries.
In terms of forward non-GAAP P/E, CCSI is trading at 4.97x, which is 77.4% lower than the industry average of 21.93x. Its forward P/S of 1.31 is 48.7% lower than the industry average of 2.56.
On August 10, 2023, CCSI announced the launch of Clarity Clinical Documentation (Clarity CD). This cost-effective, turnkey solution uses natural language processing and artificial intelligence to extract patient data from unstructured clinical documents, such as faxes, handwritten notes, and scanned files.
The launch of this new solution advances the secure exchange of healthcare data while evolving the role digital faxes play in a health system's broader interoperability strategy.
In the fiscal second quarter ended June 30, 2023, CCSI’s revenues increased 1.8% year-over-year to $92.79 million. Its non-GAAP net income came in at $26.73 million. In addition, its adjusted EPS came in at $1.36 and adjusted EBITDA came in at $47.67 million.
In the fiscal year 2023, the company expects revenue ranging from $370 million to $390 million, adjusted EBITDA between $192 million and $206 million, and adjusted non-GAAP earnings per diluted share in the range of $4.93 to $5.20. This guidance underscores the company's commitment to achieving its financial goals in the specified range for the year.
According to analysts, CCSI’s EPS and revenue are expected to increase 15.7% and 5.8% year-over-year to $1.31 and $95.47 million in the current quarter ending December 2023.
The stock has gained 1.2% over the past five days to close the last trading session at $24.33.
CCSI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
It has an A grade for Value and a B for Quality. It is ranked #4 among 23 stocks in the B-rated Software – SAAS industry.
Click here to access CCSI’s Growth, Momentum, Stability, and Sentiment ratings.
Stock #2: Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform, connecting, managing, and unifying data across multi-cloud, hybrid systems at an enterprise scale. The company also provides maintenance and professional services.
INFA’s forward EV/EBIT of 16.99x is 4.9% lower than the 17.85x industry average. Its forward P/S multiple of 3.12 is 21.1% lower than the industry average of 3.95.
On September 21, INFA announced that the National Roads and Motorists’ Association (NRMA), Australia’s largest member-owned organization, had selected INFA’s AI-powered data management cloud platform, Intelligent Data Management Cloud (IDMC), to enhance customer engagement across various lines of business, including roadside assistance, travel, tourism, and lifestyle services.
INFA’s modern data management platform eliminates data silos, democratizes data access, and enhances the customer experience by quickly delivering high-quality, reliable data to support various organizational functions.
On September 19, INFA and Oracle Corporation (ORCL) announced that they had advanced their strategic partnership by introducing an Oracle Cloud Infrastructure (OCI) point of delivery to serve a large customer base in North America.
This collaboration includes new integrations and capabilities for INFA's Intelligent Data Management Cloud (IDMC) on Oracle's Modern Data Platform. IDMC, a cloud-native, AI-powered data management platform, simplifies the data lifecycle and ensures a unified data management experience for shared Informatica-Oracle customers, irrespective of cloud or on-premises architectures.
INFA’s total revenues for the fiscal second quarter ended June 30, 2023, increased 1.1% year-over-year to $375.99 million. Its non-GAAP net income rose 7.2% from the same period last year to $48.14 million, and non-GAAP net income per share increased 6.3% year-over-year to $0.17.
Moreover, its adjusted EBITDA increased 21.8% from the prior-year quarter to $91.74 million.
In the third quarter, INFA expects approximately 8% year-over-year growth in GAAP total revenues, 13% growth in Subscription ARR, 35% in Cloud Subscription ARR, and 37% in non-GAAP operating income.
For the fiscal year 2023, the company anticipates around 5% year-over-year growth in GAAP total revenues, Total ARR, and a 35% growth in Cloud Subscription ARR. The company also raised its non-GAAP operating income and adjusted unlevered FCF, expecting 23% and 32% growth at the midpoint of the ranges, respectively.
Street expects INFA’s EPS and revenue for the fiscal third quarter (ended September 2023) to increase 25.7% and 8.1% year-over-year to $0.23 and $402.07 million, respectively. In addition, the stock has exceeded the consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 34% over the past six months and 30% year-to-date to close the last trading session at $21.18.
INFA’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary system.
It has an A grade for Growth and a B for Stability and Sentiment. It is ranked #2 in the same industry.
Click here to see INFA’s Value, Momentum, and Quality ratings.
Stock #1: Vimeo, Inc. (VMEO)
VMEO and its subsidiaries provide video software solutions worldwide. The company provides video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
VMEO’s forward EV/Sales of 0.80% is 57.4% lower than the 1.857% industry average.
For the second quarter ended June 30, 2023, VMEO reported revenue of $101.84 million. Its gross profit came in at $78.99 million. Its net income came in at $5.87 million, compared to a net loss of $26.50 million in the prior-year quarter. Also, its EPS came in at $0.03, compared to a loss per share of $0.16 in the year-ago quarter.
The company is optimistic about achieving its goal of returning to bookings growth by year-end while focusing on non-GAAP profitability. In the third quarter of 2023, VMEO anticipates revenue slightly above $100 million and Adjusted EBITDA around $2 million. For the fiscal year 2023, the company expects adjusted EBITDA ranging from $10 to $15 million.
VMEO’s EPS is expected to rise 85.9% in the fiscal year 2023. Its revenue is likely to stand at $409.43 million in the current year. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters.
The stock has declined marginally year-to-date to close the last trading session at $3.42.
It’s no surprise that VMEO has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has a B grade for Value, Sentiment and Quality. It is ranked first in the Software – SAAS industry.
Beyond what is stated above, we’ve also rated VMEO for Growth, Momentum and Stability. Get all VMEO ratings here.
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INFA shares were trading at $20.99 per share on Friday morning, down $0.19 (-0.90%). Year-to-date, INFA has gained 28.85%, versus a 14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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