From commerce to culture, software is digitizing every aspect of our lives. The undeniable tailwinds fueling the industry have also led to decent returns for SaaS stocks lately as they’ve gained 17.5% over the past six months. This performance was almost identical to the S&P 500.
Although these businesses have produced results, only the best will survive over the long term as AI is eating into the profits of those with lower switching costs. Taking that into account, here are two resilient software stocks at the top of our wish list and one that may face trouble.
One Software Stock to Sell:
Alarm.com (ALRM)
Market Cap: $2.62 billion
Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.
Why Should You Sell ALRM?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.4% average billings growth over the last year was weak
- Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $52.50 per share, Alarm.com trades at 3.1x forward price-to-sales. Check out our free in-depth research report to learn more about why ALRM doesn’t pass our bar.
Two Software Stocks to Watch:
Samsara (IOT)
Market Cap: $21.35 billion
From sensors on vehicles to AI-powered cameras that help prevent accidents, Samsara (NYSE: IOT) is a cloud-based Internet of Things platform that helps businesses improve the safety, efficiency, and sustainability of their physical operations.
Why Should You Buy IOT?
- Ability to secure long-term commitments with customers is evident in its 31.8% ARR growth over the last year
- Estimated revenue growth of 21.2% for the next 12 months implies its momentum over the last two years will continue
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
Samsara is trading at $37.22 per share, or 12.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Cadence Design Systems (CDNS)
Market Cap: $94.97 billion
Powering the chips behind everything from smartphones to AI accelerators for over 35 years, Cadence Design Systems (NASDAQ: CDNS) provides essential computational software, hardware, and intellectual property used by engineers to design and verify advanced electronic systems and semiconductors.
Why Are We Positive On CDNS?
- Billings growth has averaged 25.5% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Software is difficult to replicate at scale and results in a best-in-class gross margin of 85.6%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
Cadence Design Systems’s stock price of $348.24 implies a valuation ratio of 17.2x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive 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.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum 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).
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