The Federal Reserve’s recent hawkish stance has precipitated a rise in bond yields. Furthermore, U.S. technology companies are under mounting pressure this year, and analysts expect 2022 to be a year of normalization for the technology sector.
Saira Malik, Chief Investment Officer, Equity, at financial planning company Nuveen, believes that although the software market is gripped with uncertainty due to expectations of rising interest rates, the future of the software market is bright because demand remains robust. Spending in the industry is expected to rise 11.5% globally in constant currency terms in 2022, outpacing its 2021 levels.
Therefore, under the radar software stocks, Avalara, Inc. (AVLR) and VTEX (VTEX) might be ideal additions to one’s watchlist. Indeed, Wall Street analysts expect these stocks to rally by more than 75% in price in the near term.
Click here to check out our Software Industry Report for 2022
Avalara, Inc. (AVLR)
AVLR is a Seattle, Wash., cloud-based solution provider for transaction tax compliance worldwide. The company’s offerings include a suite of compliance solutions that enable businesses to address transaction tax compliance complexity, process transactions in real-time, and the reduction of errors.
On November 2, AVLR announced that its cross-border compliance capabilities power the new duty and import tax features of Shopify Inc.’s (SHOP) global commerce hub. The company also announced the acquisition of 3CE Technologies, a Harmonized System (HS) commodity classification codes and verification solutions provider, which is expected to expand its cross-border capabilities.
On October 18, AVLR announced the acquisition of CrowdReason Limited Liability Company, a developer of SaaS-based property tax compliance applications. Regarding this acquisition, Jayme Fishman, EVP of corporate development at AVLR, said, “Adding property tax content and software to our global compliance portfolio extends Avalara’s footprint into a large and exciting new tax type. This transaction will increase the opportunity we have to support businesses with more of their compliance requirements.”
For its fiscal third quarter, ended Sept. 30, AVLR’s total revenue increased 41.7% year-over-year to $181.17 million. Its non-GAAP gross profit and non-GAAP operating income rose 39.4% and 100.8%, respectively, from the prior-year quarter to $133.17 million and $3.46 million.
The consensus EPS estimate for the quarter ending March 2022 indicates a 12.5% year-over-year increase. And the $192.42 million consensus revenue estimate for the same period reflects a 25.3% improvement from the prior-year period. Furthermore, AVLR has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 8.9% in price over the past five days to close yesterday’s trading session at $105.07.
The nine Wall Street analysts rating AVLR have rated it Buy. The 12-month median price target of $190.67 indicates an 81.5% potential upside. The price targets range from a low of $130.00 to a high of $220.00.
VTEX (VTEX)
VTEX is a Software-as-a-Service (SaaS) digital commerce platform for enterprise brands and retailers. The company, which is headquartered in London, enables customers to execute their commerce strategies, including online store-building, orders management, and marketplaces creation.
On January 26, frictionless commerce solutions provider Pivotree Inc. and VTEX, as its strategic partner, announced that the companies had deployed a B2B commerce marketplace for CAE Inc. (CAE), supporting the company in enhancing digital customer experiences. This venture is expected to be profitable for the company.
On January 25, Digibee, a low-code integration platform, announced its Partner Program for providing integration ecosystems as a competitive advantage. The company introduced VTEX as its partner in this program. Regarding the partnership, Amit Shah, Chief Strategy Officer at VTEX, said, “Through the Digibee Partnership Program, our clients will gain visibility and consistency across critical data points, including customers, sales, and inventory to improve their marketing efforts, inventory management, and sales growth projections.”
VTEX’s total revenue increased 15.2% year-over-year to $31.86 million in its fiscal third quarter, ended September 30. Its non-GAAP subscription gross profit improved 5.2% from the prior-year period to $20.20 million. For the nine months ended September 30, the company’s cash and cash equivalent balance was $321.63 million, up 441.7% from the same period the prior year.
Analysts expect VTEX’s EPS to improve 15.2% year-over-year for its fiscal year 2022. The Street expects revenue for the same period to increase 27.6% from the prior year to $159.85 million.
VTEX’s shares have gained 16.1% in price over the past five days to close yesterday’s trading session at $7.29.
All three Wall Street analysts rating VTEX, have rated it Buy. The 12-month median price target of $13.00 indicates a 78.3% potential upside. The price targets range from a low of $10.00 to a high of $16.00.
Click here to check out our Software Industry Report for 2022
AVLR shares were trading at $100.89 per share on Thursday afternoon, down $4.18 (-3.98%). Year-to-date, AVLR has declined -21.86%, versus a -5.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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