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 cause volatility. Unfortunately, the rich prices have haunted them over the past six months as the industry has shed 8.8%. This drawdown was worse than the S&P 500’s 1.9% decline.

However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. Taking that into account, here is one software stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Two Software Stocks to Sell:

DocuSign (DOCU)

Market Cap: $17.47 billion

Founded by Seattle-based entrepreneur Tom Gonser, DocuSign (NASDAQ: DOCU) is the pioneer of e-signature and offers software as a service that allows people and organisations to sign legally binding documents electronically.

Why Does DOCU Give Us Pause?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 6.6% underwhelmed
2. Estimated sales growth of 5.2% for the next 12 months implies demand will slow from its three-year trend
3. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue

At $85.24 per share, DocuSign trades at 5.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DOCU.

Sprout Social (SPT)

Market Cap: $1.25 billion

Founded by Justyn Howard and Aaron Rankin in 2010, Sprout Social (NASDAQ: SPT) provides a software as a service platform that companies can use to schedule and respond to posts on major social media networks like Twitter, Facebook, Instagram, Youtube and LinkedIn.

Why Does SPT Fall Short?

1. Rapid expansion strategy came at the expense of operating profitability
2. Poor free cash flow margin of 7.6% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Sprout Social is trading at $21.40 per share, or 2.7x forward price-to-sales. Check out our free in-depth research report to learn more about why SPT doesn’t pass our bar.

One Software Stock to Watch:

Toast (TOST)

Market Cap: $24.7 billion

Founded by three MIT engineers at a local Cambridge bar, Toast (NYSE: TOST) provides integrated point-of-sale (POS) hardware, software, and payments solutions for restaurants.

Why Are We Fans of TOST?

1. ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
2. Estimated revenue growth of 21.1% for the next 12 months implies its momentum over the last three years will continue
3. Operating margin expanded by 8.3 percentage points over the last year as it scaled and became more efficient

Toast’s stock price of $42.80 implies a valuation ratio of 4.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

High-Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.