Despite macroeconomic challenges, the software industry is projected to remain steady. This is primarily due to an increased reliance on technology and digital solutions across a wide range of industries. Therefore, affordable software stocks Zedge, Inc. (ZDGE), Brightcove Inc. (BCOV), and Immersion Corporation (IMMR) could be wise additions to your portfolio now.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
The software industry has greatly impacted the US economy by encouraging innovation and creating jobs. It has contributed to the development of other industries, such as e-commerce and telecommunications, by providing the essential tools and platforms. The software industry contributes around $1.4 trillion to the US economy annually.
Gartner forecasts software spending to increase 13.7% year-over-year to $922.75 billion. This expansion is being driven mostly by rising demand for cloud-based software solutions and digital transformation projects across industries. Also, Gartner anticipates that the use of artificial intelligence and machine learning technologies will accelerate the increase of software investment in the coming years.
In addition, the application development software market is expected to reach $1.04 trillion by 2030, increasing at a 25.5% CAGR. The market for application development software is likely to expand due to the rising need for scalable and customized software applications.
Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 17.8% returns over the past six months.
In light of these encouraging trends, let’s look at the fundamentals of the three top-rated Software - Application stocks, beginning with number 3.
Stock #3: Zedge, Inc. (ZDGE)
ZDGE builds digital marketplaces and games around content that people use to express themselves. The Company monetizes its user base through advertising, subscriptions, and a virtual token-based economy.
ZDGE’s forward non-GAAP P/E multiple of 11.78 is 17.4% lower than the industry average of 14.26. Its forward EV/EBITDA multiple of 3.13% is 61.5% lower than the industry average of 8.15.
ZDGE’s trailing-12-month gross profit margin of 91.60% is 85.5% higher than the 49.37% industry average. Its trailing-12-month CAPEX / Sales of 5.72% is 42.2% higher than the 4.02% industry average.
For the fiscal third quarter that ended April 30, 2023, ZDGE’s revenue increased 8% year-over-year to $6.73 million. Its total current assets came in at $22.02 million for the period that ended April 30, 2023, compared to $19.89 million for the period that ended July 31, 2022.
Also, its total current liabilities came in at $7.26 million, compared to $8.66 million for the same period.
The consensus revenue estimate of 31.61 million for the year ending July 2024 represents a 18.5% increase year-over-year. Its EPS is expected to come in at $0.06 for the same period. It surpassed EPS estimates in three of four trailing quarters. ZDGE’s shares have gained 5.1% over the past six months to close the last trading session at $2.08.
ZDGE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ZDGE also has an A grade for Value and Sentiment and a B for Quality. It is ranked #31 out of 134 stocks in the Software - Application industry. Click here for the additional POWR Ratings for Growth, Stability, and Momentum for ZDGE.
Stock #2: Brightcove Inc. (BCOV)
BCOV is a provider of cloud-based streaming services. The Company offers six video products, which include Brightcove Video Cloud, Brightcove Live, Brightcove Beacon, Brightcove Player, Zencoder and Brightcove Audience Insights.
BCOV’s forward EV/Sales multiple of 0.68 is 73.8% lower than the industry average of 2.58. Its forward Price/Sales multiple of 0.65% is 74.3% lower than the industry average of 2.54.
BCOV’s trailing-12-month CAPEX / Sales of 5% is 106.6% higher than the 2.42% industry average. Its trailing-12-month asset turnover ratio of 0.91x is 46.8% higher than the 0.62x industry average.
BCOV’s professional services and other revenue for the second quarter ended June 30, 2023, increased 35.4% year-over-year to $1.98 million, while its adjusted EBITDA came in at $3.5 million.
Street expects BCOV’s revenue to increase 4.7% year-over-year to $211.04 million for the year ending December 2024. Its EPS is expected to come in at $0.13 for the same period. Shares of BCOV has gained 2.3% intraday to close the last trading session at $3.12.
BCOV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #28 in the same industry. It has an A grade for Sentiment and a B for Value and Stability. To see additional BCOV’s ratings for Momentum, Sentiment and Quality, click here.
Stock #1: Immersion Corporation (IMMR)
IMMR together with its subsidiaries, creates, designs, develop, and licenses haptic technologies that allow people to use their sense of touch to engage with and experience various digital products in North America, Europe, and Asia.
IMMR’s forward non-GAAP PEG multiple of 0.26 is 85.7% lower than the industry average of 1.83. Its forward EV/EBIT multiple of 2.74% is 84.6% lower than the industry average of 17.81.
IMMR’s trailing-12-month net income margin of 114.7% is significantly higher than the 2.11% industry average. Its trailing-12-month EBIT margin of 62.01% is significantly higher than the 4.91% industry average.
IMMR’s revenues came in at $6.98 million in the fiscal second quarter that ended June 30, 2023. Its operating income came in at $3.11 million. Its non-GAAP net income came in at $9.09 million, compared to a net loss of $1.07 million in the prior-year quarter.
Also, its non-GAAP EPS came in at $0.28, compared to a loss per share of $0.03 in the year-ago period.
Analysts expect IMMR’s revenue to increase marginally year-over-year to $30 million for the year ending December 2024. Its EPS is expected to grow at 5.5% year-over-year to $1.35 for the same period. It surpassed EPS estimates in all the four trailing quarters. Over the past year the stock has gained 36.3% to close the last trading session at $6.82.
It’s no surprise that IMMR has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value. It is ranked #25 in the same industry.
Beyond what is stated above, we’ve also rated IMMR for Growth, Stability, Momentum and Sentiment. Get all IMMR ratings here.
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IMMR shares were trading at $6.83 per share on Wednesday afternoon, up $0.01 (+0.15%). Year-to-date, IMMR has declined -0.38%, versus a 14.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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