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 13.2%. This drawdown is a noticeable divergence from the S&P 500’s 5.4% return.
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. With that said, here is one resilient software stock at the top of our wish list and two we’re steering clear of.
Two Software Stocks to Sell:
Yext (YEXT)
Market Cap: $964.5 million
Founded in 2006 by Howard Lerman, Yext (NYSE: YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.
Why Does YEXT Worry Us?
- Average ARR growth of 8.8% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
- Projected sales growth of 4.7% for the next 12 months suggests sluggish demand
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
Yext’s stock price of $7.88 implies a valuation ratio of 2.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than YEXT.
Agilysys (AGYS)
Market Cap: $3.02 billion
Originally a subsidiary of Pioneer-Standard Electronics that distributed electronic components, Agilysys (NASDAQ: AGYS) offers a software-as-service platform that helps hotels, resorts, restaurants, and other hospitality businesses manage their operations and workflows.
Why Does AGYS Give Us Pause?
- Revenue increased by 19% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 62.1%
Agilysys is trading at $108.36 per share, or 9.5x forward price-to-sales. Read our free research report to see why you should think twice about including AGYS in your portfolio.
One Software Stock to Watch:
Autodesk (ADSK)
Market Cap: $60.55 billion
Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ: ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.
Why Are We Fans of ADSK?
- Average billings growth of 23.1% over the last year enhances its liquidity and shows there is steady demand for its products
- Software is difficult to replicate at scale and leads to a best-in-class gross margin of 92%
- Excellent operating margin of 20.3% highlights the efficiency of its business model
At $282.93 per share, Autodesk trades at 8.5x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
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