Software is eating the world, and virtually no business is left untouched by it. This secular theme makes SaaS companies attractive investment candidates but also comes with higher valuations that make re-ratings harder. Unfortunately, the rich prices have haunted them over the past six months as the industry was flat while the S&P 500 was up 13%.
Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. Keeping that in mind, 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:
Dayforce (DAY)
Market Cap: $11.04 billion
Rebranded from Ceridian in January 2024 to highlight its flagship product, Dayforce (NYSE: DAY) provides cloud-based software that helps organizations manage their entire employee lifecycle, including HR, payroll, workforce management, benefits, and talent development.
Why Does DAY Give Us Pause?
- Average billings growth of 12% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Sky-high servicing costs result in an inferior gross margin of 50.9% that must be offset through increased usage
- Static operating margin over the last year shows it couldn’t become more efficient
At $68.95 per share, Dayforce trades at 5.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DAY.
Teradata (TDC)
Market Cap: $2.54 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 Do We Think TDC Will Underperform?
- Products, pricing, or go-to-market strategy need some adjustments as its billings have averaged 4.4% declines over the last year
- Gross margin of 59.4% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
Teradata is trading at $27.29 per share, or 1.6x forward price-to-sales. To fully understand why you should be careful with TDC, check out our full research report (it’s free for active Edge members).
One Software Stock to Buy:
ServiceNow (NOW)
Market Cap: $176.4 billion
Built on a single code base that processes over 4 billion workflow transactions daily, ServiceNow (NYSE: NOW) provides a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.
Why Is NOW a Top Pick?
- Demand is healthy as its current remaining performance obligations (cRPO) have averaged 21.8% growth over the last year, showing it’s securing new contracts for services yet to be fulfilled
- Healthy operating margin of 13.9% shows it’s a well-run company with efficient processes, and its operating leverage amplified its profits over the last year
- Robust free cash flow margin of 31.4% gives it many options for capital deployment
ServiceNow’s stock price of $852.21 implies a valuation ratio of 11.8x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
