From commerce to culture, software is digitizing every aspect of our lives. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have capped returns lately as the industry was flat over the past six months and trailed the S&P 500’s 6.2% gain.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. Keeping that in mind, here are two resilient software stocks at the top of our wish list and one that may face trouble.
One SoftwareStock to Sell:
Alarm.com (ALRM)
Market Cap: $2.87 billion
Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.
Why Does ALRM Give Us Pause?
- Products, pricing, or go-to-market strategy may need some adjustments as its 6.6% average billings growth over the last year was weak
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its three-year trend
- High servicing costs result in a relatively inferior gross margin of 65.7% that must be offset through increased usage
At $57.69 per share, Alarm.com trades at 3.5x forward price-to-sales. To fully understand why you should be careful with ALRM, check out our full research report (it’s free).
Two Software Stocks to Watch:
Monday.com (MNDY)
Market Cap: $15.81 billion
Founded in 2014 and named after the dreaded first day of the work week, Monday.com (NASDAQ: MNDY) is a software-as-a-service platform that helps organizations plan and track work efficiently.
Why Will MNDY Outperform?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Software is difficult to replicate at scale and results in a best-in-class gross margin of 89.5%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Monday.com is trading at $307.40 per share, or 12.6x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Integral Ad Science (IAS)
Market Cap: $1.41 billion
Founded in 2009, Integral Ad Science (NASDAQ: IAS) provides digital advertising verification and optimization solutions, ensuring that ads are viewable by real people in brand-safe environments across various platforms and devices.
Why Are We Positive On IAS?
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
- Robust free cash flow margin of 22.1% gives it many options for capital deployment
Integral Ad Science’s stock price of $8.53 implies a valuation ratio of 2.3x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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 5 Growth Stocks for this month. 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-small-cap company Comfort Systems (+782% 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
