From commerce to culture, software is digitizing every aspect of our lives. 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 held them back over the past six months as the industry’s gain of 1.5% has fallen short of the S&P 500’s 12.7% rise.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. With that said, here are three software stocks boasting durable advantages.
Snowflake (SNOW)
Market Cap: $76.13 billion
Named after the unique architecture of its data warehouse which resembles a snowflake pattern, Snowflake (NYSE: SNOW) provides a cloud-based data platform that enables organizations to consolidate, analyze, and share data across multiple cloud providers.
Why Is SNOW a Top Pick?
- Average billings growth of 30.5% over the last year enhances its liquidity and shows there is steady demand for its products
- Expected revenue growth of 25.1% for the next year suggests its market share will rise
- Free cash flow margin is anticipated to expand by 8.1 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
At $223.51 per share, Snowflake trades at 13.7x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
GitLab (GTLB)
Market Cap: $6.40 billion
With its all-remote workforce pioneering a new approach to software development, GitLab (NASDAQ: GTLB) provides a single-application DevSecOps platform that helps development, operations, and security teams collaborate to build, secure, and deploy software faster.
Why Is GTLB a Good Business?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Prominent and differentiated software leads to a best-in-class gross margin of 88%
- Strong free cash flow margin of 26.5% enables it to reinvest or return capital consistently
GitLab’s stock price of $38.08 implies a valuation ratio of 5.9x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
PTC (PTC)
Market Cap: $21.28 billion
Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ: PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.
Why Does PTC Stand Out?
- Software is difficult to replicate at scale and leads to a stellar gross margin of 83.8%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Highly efficient business model is illustrated by its impressive 35.9% operating margin, and its profits increased over the last year as it scaled
PTC is trading at $178.19 per share, or 7.6x 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.
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