Software is rapidly reducing operating expenses for businesses. This secular theme makes SaaS companies attractive investment candidates but also comes with higher valuations that make re-ratings harder. Unfortunately, the rich prices have haunted them over the past six months as the industry was flat while the S&P 500 was up 10.3%.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. With that said, here is one software stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Software Stocks to Sell:
RingCentral (RNG)
Market Cap: $2.74 billion
Built on its proprietary Message Video Phone (MVP) platform that unifies multiple communication methods, RingCentral (NYSE: RNG) provides AI-driven cloud communications and collaboration solutions that enable businesses to connect through voice, video, messaging, and contact center services.
Why Should You Sell RNG?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 5% underwhelmed
- Estimated sales growth of 5% for the next 12 months implies demand will slow from its three-year trend
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
RingCentral’s stock price of $30.24 implies a valuation ratio of 1.1x forward price-to-sales. Read our free research report to see why you should think twice about including RNG in your portfolio.
DigitalOcean (DOCN)
Market Cap: $2.80 billion
Built for simplicity in a world of complex cloud solutions, DigitalOcean (NYSE: DOCN) provides a simplified cloud computing platform that enables developers and small businesses to quickly deploy and scale applications.
Why Are We Wary of DOCN?
- 19.2% annual revenue growth over the last three years was slower than its software peers
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 98.8% net revenue retention rate
- Gross margin of 59.7% reflects its high servicing costs
At $30.90 per share, DigitalOcean trades at 3.3x forward price-to-sales. To fully understand why you should be careful with DOCN, check out our full research report (it’s free).
One Software Stock to Buy:
monday.com (MNDY)
Market Cap: $9.07 billion
With its colorful interface of boards, columns, and automation that replaced the chaos of spreadsheets, monday.com (NASDAQ: MNDY) is a cloud-based work operating system that helps teams manage projects, track tasks, and streamline workflows through customizable interfaces.
Why Should You Buy MNDY?
- Customers view its software as mission-critical to their operations as its ARR has averaged 30.4% growth over the last year
- Superior software functionality and low servicing costs lead to a best-in-class gross margin of 89.4%
- MNDY is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
monday.com is trading at $177.25 per share, or 6.9x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at 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-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
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