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 cause volatility. Unfortunately, the rich prices have haunted them over the past six months as the industry has shed 9.8%. This performance is a noticeable divergence from the S&P 500’s 8.4% return.

Investors should tread carefully as only some businesses are worthy of their valuations because AI and competition will commoditize many products. Taking that into account, here are three software stocks we’re swiping left on.

BlackLine (BL)

Market Cap: $1.64 billion

Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ: BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.

Why Should You Dump BL?

1. Average billings growth of 8.5% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
3. Static operating margin over the last year shows it couldn’t become more efficient

BlackLine’s stock price of $28.74 implies a valuation ratio of 2.5x forward price-to-sales. Check out our free in-depth research report to learn more about why BL doesn’t pass our bar.

DoubleVerify (DV)

Market Cap: $1.57 billion

Using advanced analytics to evaluate over 17 billion digital ad transactions daily, DoubleVerify (NYSE: DV) provides AI-powered technology that verifies digital ads are viewable, fraud-free, brand-suitable, and displayed in the intended geographic location.

Why Do We Avoid DV?

1. Revenue increased by 13.7% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
2. Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
3. Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs

At $10.20 per share, DoubleVerify trades at 2x forward price-to-sales. To fully understand why you should be careful with DV, check out our full research report (it’s free).

Upland Software (UPLD)

Market Cap: $21.61 million

Operating under the mantra "land and expand," Upland Software (NASDAQ: UPLD) provides cloud-based applications that help organizations manage projects, workflows, and digital transformation across various business functions.

Why Do We Steer Clear of UPLD?

1. Billings have dropped by 25.1% over the last year, suggesting it might have to lower prices to stimulate growth
2. Projected sales decline of 2.2% over the next 12 months indicates demand will continue deteriorating
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Upland Software is trading at $0.70 per share, or 0.1x forward price-to-sales. Check out our free in-depth research report to learn more about why UPLD doesn’t pass our bar.

Stocks We Like More

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