Software is eating the world, and virtually no business is left untouched by it. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the last six months, the industry’s 26.2% return has topped the S&P 500 by 17.2 percentage points.
Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. On that note, here are three software stocks boasting durable advantages.
Adobe (ADBE)
Market Cap: $197.9 billion
One of the most well-known Silicon Valley software companies around, Adobe (NASDAQ: ADBE) is a leading provider of software as service in the digital design and document management space.
Why Are We Fans of ADBE?
- Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 31.3%
- Strong free cash flow margin of 36.6% enables it to reinvest or return capital consistently
Adobe is trading at $455 per share, or 8.6x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Paycom (PAYC)
Market Cap: $11.6 billion
Founded in 1998 as one of the first online payroll companies, Paycom (NYSE: PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.
Why Are We Positive On PAYC?
- Software is difficult to replicate at scale and results in a stellar gross margin of 84.8%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Healthy operating margin of 33.7% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs
Paycom’s stock price of $215 implies a valuation ratio of 5.9x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
Samsara (IOT)
Market Cap: $30.67 billion
One of the few public companies where Marc Andreessen is a Board member, Samsara (NYSE: IOT) provides software and hardware to track industrial equipment, assets, and fleets.
Why Should IOT Be on Your Watchlist?
- ARR growth averaged 36.6% over the last year, showing customers are willing to take multi-year bets on its offerings
- Net revenue retention rate of 117% demonstrates its ability to expand within existing accounts through upsells and cross-sells
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
At $54.96 per share, Samsara trades at 21x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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Get started by checking out 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
