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 13.5%. This performance is a stark contrast from the S&P 500’s 8.2% gain.
While some can support their premium valuations with superior earnings growth, the odds aren’t great for the businesses we’re analyzing today. Keeping that in mind, here are three software stocks we’re steering clear of.
Autodesk (ADSK)
Market Cap: $57.13 billion
Starting with AutoCAD in the 1980s and evolving into a comprehensive design ecosystem, Autodesk (NASDAQ: ADSK) provides software solutions for architecture, engineering, construction, manufacturing, and entertainment industries to design, simulate, and visualize projects.
Why Does ADSK Give Us Pause?
- Sales trends were unexciting over the last five years as its 13.5% annual growth was below the typical software company
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
At $269.49 per share, Autodesk trades at 7.5x forward price-to-sales. Check out our free in-depth research report to learn more about why ADSK doesn’t pass our bar.
Teradata (TDC)
Market Cap: $2.74 billion
Pioneering data warehousing technology in the 1980s before "big data" was a common term, Teradata (NYSE: TDC) provides cloud-based data analytics and AI platforms that help large enterprises integrate, analyze, and leverage their data across multiple environments.
Why Should You Sell TDC?
- Billings have dropped by 4.4% over the last year, suggesting it might have to lower prices to stimulate growth
- Gross margin of 59.4% reflects its high servicing costs
- Operating margin failed to increase over the last year, indicating the company couldn’t optimize its expenses
Teradata is trading at $29.37 per share, or 1.8x forward price-to-sales. Read our free research report to see why you should think twice about including TDC in your portfolio.
American Express Global Business Travel (GBTG)
Market Cap: $3.80 billion
Originally spun off from American Express in 2014 but maintaining the Amex GBT brand, Global Business Travel Group (NYSE: GBTG) provides end-to-end business travel and expense management solutions, connecting corporate clients with travel suppliers and offering specialized software services.
Why Do We Steer Clear of GBTG?
- Muted 5.3% annual revenue growth over the last two years shows its demand lagged behind its software peers
- High servicing costs result in a relatively inferior gross margin of 61% that must be offset through increased usage
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
American Express Global Business Travel’s stock price of $7.26 implies a valuation ratio of 1.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GBTG.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
