The exponential growth in enterprise data volume has created a massive demand for robust software solutions and services to handle and analyze this data effectively. With automation on the rise in industries, the demand for advanced software tools and services is growing.
Amid this, let’s look into software stocks like RingCentral, Inc. (RNG), Yext, Inc. (YEXT), and SolarWinds Corporation (SWI), trading under $35, which could be solid additions to your portfolio.
Investment in the software market is increasingly being driven by companies’ digital transformation and cloud-based software. The sector is also experiencing a heightened demand for data analytics and process automation.
According to Statista, revenue in the software market is projected to reach $659 billion in 2023. Further, it is expected to expand at a CAGR of 5.4%, resulting in a market volume of $858.10 billion by 2028.
The proliferation of advanced technologies in modern society has led to businesses adopting new models and opportunities to stay ahead of the curve. Consequently, the digital transformation market is projected to reach $3.14 trillion by 2030, growing at a 24.1% CAGR.
As businesses ramp up their automation across end-use industries, the demand for software and related services is anticipated to rise. The global business software and services market is expected to expand at a CAGR of 11.9% from 2023 to 2030.
That said, let’s dive deeper into the fundamentals of the Software – Business picks, which are rated B (Buy) in our proprietary POWR Ratings system, starting with number three.
Stock #3: RingCentral, Inc. (RNG)
RNG is a global provider of cloud-based communication and collaboration solutions, offering a range of products, including unified communication, a contact centre, and digital customer engagement platforms. The company distributes its products through direct sales representatives, resellers, and channel partners.
On August 31, RNG announced that Republic Airways had chosen RingCentral MVP and RingCentral Contact Center to enhance employee communications and streamline operations.
This move will enable real-time communication between flight staff and the operations center, improving workflows and supporting their enterprise-wide digital transformation, reinforcing RNG's position as a provider of AI-powered enterprise cloud communication solutions.
On August 7, RNG introduced RingCX, an AI-powered native contact center solution that integrates seamlessly with its unified communications offerings. This solution aims to enhance customer satisfaction and operational efficiency by providing a comprehensive omnichannel experience, further solidifying RNG's position as a leading provider of cloud communication and contact center solutions.
For the fiscal second quarter that ended June 30, RNG’s total revenues increased 10.8% year-over-year to $539.31 million. Its gross profit grew 14% from year-ago value to $374.89 million. Moreover, the company’s non-GAAP income from operations came in at $104.44 million, up 89.3% from the prior year's quarter.
Also, RNG’s non-GAAP adjusted EBITDA increased 71.8% year-over-year to $124.98 million. Additionally, its non-GAAP net income and non-GAAP net income per share stood at $80.01 million and $0.83 per share, representing increases of 87.1% and 84.4% from the previous year’s quarter, respectively.
Street expects RNG’s EPS to grow 37.1% year-over-year to $0.75 for the fiscal third quarter ending September 2023. The company’s revenue is projected to reach $554.24 million, up 8.9% from the prior year. Moreover, the company surpassed the consensus EPS estimates in all four trailing quarters.
Over the past month, the stock has gained 1.5% to close the last trading session at $31.23.
RNG’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
RNG has a B grade for Growth and Value. It is ranked #15 out of 46 stocks in the Software – Business industry.
Click here to see the other ratings of RNG for Momentum, Stability, Sentiment, and Quality.
Stock #2: Yext, Inc. (YEXT)
YEXT offers a cloud-based platform enabling businesses to control and update their information across various online platforms, helping them answer consumer questions and manage online reviews. The company primarily serves the healthcare, retail, and financial services industries.
On July 31, YEXT announced its Summer '23 Release, featuring AI-driven enhancements to its digital experience platform (DXP).
These improvements would empower businesses to create consumer-grade digital experiences more easily, helping them streamline processes, respond to customer reviews, and generate content across various channels, ultimately strengthening YEXT's position as a leading player in the digital experience market.
On July 19, YEXT introduced AI Generated Review Response within its YEXT Reviews, allowing businesses to automatically generate personalized and contextually appropriate responses to customer reviews across digital channels.
This capability is expected to enhance customer engagement and streamline review management, positioning YEXT as a provider of tools to improve brand-building experiences and customer interactions.
For the fiscal 2024 second quarter that ended July 31, 2023, YEXT’s revenue increased 1.7% year-over-year to $102.60 million. Its non-GAAP gross profit grew 7.8% from year-ago value to $80.97 million. Moreover, the company’s non-GAAP income from operations came in at $7.33 million, compared to a loss of $3.44 million in the prior year’s period.
Furthermore, YEXT’s non-GAAP net income and non-GAAP net income per share attributable to common stockholders stood at $8.13 million and $0.06, compared to a loss and loss per share of $3.91 million and $0.03 in the previous year’s quarter, respectively.
The consensus revenue estimate of $102.17 million for the fiscal 2024 third quarter (ending October 2023) represents a 2.9% increase year-over-year. The consensus EPS estimate of $0.07 for the current quarter indicates a 240% year-over-year improvement. Moreover, YEXT surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 43.4% over the past year to close the last trading session at $6.71.
YEXT’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked #8 out of 46 stocks.
Click here to view YEXT’s ratings for Momentum, Stability, and Sentiment.
Stock #1: SolarWinds Corporation (SWI)
SWI is a global provider of IT management software, offering solutions for network, system, application, database management, and security solutions. The company’s products cater to technology professionals and are used to monitor, manage, and optimize various aspects of IT infrastructure and services.
On August 30, SWI announced updates to its Transform Partner Program, aimed at accelerating growth and revenue for its partners. These updates include increased benefits, a new go-to-market approach, and more opportunities for partners to support their customers' digital transformation efforts.
This move is expected to strengthen SWI's partnership network and enhance its position as a provider of observability and IT management software.
On July 18, SWI aligned its Next-Generation Build System with the National Institute of Standards and Technology (NIST) Secure Software Development Framework (SSDF) and Software Supply Chain Security Guidance.
This alignment would enhance the company's commitment to cybersecurity and align its software development processes with industry standards, strengthening its overall security posture.
For the fiscal second quarter that ended June 30, 2023, SWI’s total revenue amounted to $185.03 million, up 5.1% year-over-year. Its non-GAAP gross profit grew 3.7% from the prior year’s period to $167.05 million.
Furthermore, the company’s non-GAAP operating income rose 17.7% from the year-ago value to $74.59 million. Also, SWI’s adjusted EBITDA stood at $79.14 million, an 18.4% year-over-year improvement.
For the fiscal fourth quarter ending December 2023, SWI’s EPS is estimated to increase 1.1% year-over-year to $0.19. The company’s revenue for the same period is projected to reach $189.81 million, up 1.5% year-over-year. Additionally, the stock has topped the consensus EPS and revenue estimates in three of the four trailing quarters.
Over the past nine months, the stock has gained 22.9% to close the last trading session at $10.27.
It’s no surprise that SWI has an overall rating of B, which equates to Buy in our proprietary rating system. The stock also has a B grade for Growth, Value, and Sentiment. It has ranked #5 out of 46 stocks within the same industry.
In addition to the POWR Ratings we’ve stated above, we also have SWI’s ratings for Momentum, Stability, and Quality. Get all SWI ratings here.
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RNG shares were trading at $30.67 per share on Tuesday afternoon, down $0.56 (-1.79%). Year-to-date, RNG has declined -13.36%, versus a 17.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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