Software is eating the world, and virtually no business is left untouched by it. The undeniable tailwinds fueling SaaS companies have led to lofty valuation multiples historically, but rich prices also make re-ratings harder and place a ceiling on returns - over the past six months, the industry’s 5.3% gain has lagged the S&P 500 by 5.2 percentage points.
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 is one software stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Software Stocks to Sell:
Appian (APPN)
Market Cap: $2.28 billion
Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ: APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.
Why Do We Think Twice About APPN?
- 16% annual revenue growth over the last three years was slower than its software peers
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Projected 2.8 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Appian is trading at $31.01 per share, or 3.1x forward price-to-sales. If you’re considering APPN for your portfolio, see our FREE research report to learn more.
Couchbase (BASE)
Market Cap: $1.35 billion
Named after its fusion of Apache CouchDB and Membase technologies, Couchbase (NASDAQ: BASE) provides a modern cloud database platform that combines the reliability of traditional relational databases with the flexibility and scalability of NoSQL systems.
Why Does BASE Worry Us?
- Average billings growth of 6.6% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Cash-burning history makes us doubt the long-term viability of its business model
At $24.38 per share, Couchbase trades at 5.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BASE.
One Software Stock to Buy:
Palantir Technologies (PLTR)
Market Cap: $371.8 billion
Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ: PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.
Why Is PLTR a Top Pick?
- Billings have averaged 44.2% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- PLTR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Palantir Technologies’s stock price of $156.46 implies a valuation ratio of 82.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound 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 Kadant (+351% 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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