Software is rapidly reducing operating expenses for businesses. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as the high prices exposed them to big drawdowns, and unfortunately, the industry has tumbled by 11.9% over the last six months. This drop was much worse than the S&P 500’s 1.6% fall.

Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. Keeping that in mind, here is one software stock boasting a durable advantage and two we’re steering clear of.

Two SoftwareStocks to Sell:

Box (BOX)

Market Cap: $5.15 billion

Founded in 2005 by Aaron Levie and Dylan Smith, Box (NYSE: BOX) provides organizations with software to securely store, share and collaborate around work documents in the cloud.

Why Does BOX Worry Us?

1. Sales trends were unexciting over the last three years as its 6.6% annual growth was well below the typical software company
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.9%
3. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.5 percentage points

Box is trading at $35.80 per share, or 4.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BOX.

Paycor (PYCR)

Market Cap: $4.09 billion

Founded in 1990 in Cincinnati, Ohio, Paycor (NASDAQ: PYCR) provides software for small businesses to manage their payroll and HR needs in one place.

Why Does PYCR Give Us Pause?

1. Estimated sales growth of 9.6% for the next 12 months implies demand will slow from its three-year trend
2. High servicing costs result in a relatively inferior gross margin of 66% that must be offset through increased usage
3. Suboptimal cost structure is highlighted by its history of operating margin losses

At $22.49 per share, Paycor trades at 5.3x forward price-to-sales. Check out our free in-depth research report to learn more about why PYCR doesn’t pass our bar.

One Software Stock to Watch:

AppLovin (APP)

Market Cap: $123.3 billion

Co-founded by Adam Foroughi, who was frustrated with not being able to find a good solution to market his own dating app, AppLovin (NASDAQ: APP) is both a mobile game studio and provider of marketing and monetization tools for mobile app developers.

Why Is APP on Our Radar?

1. User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
2. Highly efficient business model is illustrated by its impressive 42.8% operating margin, and its operating leverage amplified its profits over the last year
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

AppLovin’s stock price of $363.50 implies a valuation ratio of 22.2x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today