With the proliferation of enterprise data, increased automation of business processes, and the ever-expanding realm of digitization, the software industry is booming.
Therefore, I think quality software stocks EverCommerce Inc. (EVCM), The Descartes Systems Group Inc. (DSGX), and DocuSign, Inc. (DOCU), which are rated a B (Buy) in our proprietary POWR Ratings, could be solid investments now. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
Expansion of e-commerce, growth of e-health, surge in online services, increasing sustainability of remote work, and proliferation of connected devices have collectively contributed to the widespread adoption of software products and solutions.
The increasing need for network security and privacy protection further fuels the market's expansion. The global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030.
In addition, cloud computing is recognized for its ability to enhance business performance in large enterprises, offering flexible hybrid models and supporting pay-as-you-go pricing structures. It's becoming increasingly popular in developing countries as businesses seek to improve their digital activities.
Besides, the cloud computing industry's ability to drive cost efficiency, business agility, and digital transformation has made it a focal point for businesses. As a result, the global cloud computing market is set to grow at a CAGR of 14.1% until 2030.
Furthermore, the Software as a Service (SaaS) market is robust due to its easy maintenance, flexible costs, and easy deployment. A surge in demand for SaaS services also results from remote working, allowing collaborative teams to access previously centralized data.
As the global SaaS market continues its upward trajectory, the United States is poised to remain a pivotal player, steering the course of industry growth and innovation.
The global SaaS market’s revenue is anticipated to reach approximately $141.40 billion this year. The market is expected to expand at a CAGR of 5.6% by 2028, reaching $186 billion.
Given the industry tailwinds, it’s time to examine the fundamentals of three stocks worth investing in the B-rated Software – SAAS industry, starting with the third in line.
Stock #3: EverCommerce Inc. (EVCM)
EVCM provides integrated software-as-a-service solutions for service-based small and medium-sized businesses in the United States and internationally.
EVCM’s trailing-12-month gross profit margin of 65.34% is 33.1% higher than the industry average of 49.10%. Its trailing-12-month levered FCF margin of 14.10% is 91.1% higher than the 7.38% industry average.
In July, EVCM’s EMHware and Greenspace Health successfully integrated their platforms to enhance the care process for partner clinics. This collaboration combines Greenspace Health’s Measurement-Based Care (MBC) platform with EMHware’s cloud-based Agency Management Software, offering a seamless experience for clinicians, administrative staff, and clients.
This integration will allow shared EMHware and Greenspace Health partners to improve the quality of their services by implementing MBC while maintaining a single client record accessible to the client’s full care team.
During the fiscal second quarter that ended June 30, 2023, EVCM’s total revenues increased 8.1% year-over-year to $170.05 million. Its adjusted gross profit increased 9.5% year-over-year to $111.87 million. Additionally, its adjusted EBITDA came in at $38.80 million, representing an increase of 26.2% year-over-year.
Analysts expect EVCM’s revenue to rise 11.4% year-over-year to $176.14 million in the to-be-announced quarter that ended September 2023. Its EPS is likely to be $0.10 in the same quarter.
The stock surged 35.9% year-to-date to close the last trading session at $10.11.
EVCM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
EVCM also has an A grade for Growth and a B for Stability and Sentiment. It is ranked #6 out of 23 stocks in the B-rated Software – SAAS industry.
Click here for the additional POWR Ratings for Value, Momentum, and Quality for EVCM.
Stock #2: The Descartes Systems Group Inc. (DSGX)
Headquartered in Waterloo, Canada, DSGX provides cloud-based logistics and supply chain management business process solutions that enhance logistics-intensive businesses’ productivity, performance, and security worldwide.
DSGX’s trailing-12-month net income margin of 21.59% is 921.9% higher than the industry average of 2.11%. Its trailing-12-month levered FCF margin of 37.71% is 410.9% higher than the industry average of 7.38%.
On October 2, Arrive Logistics decided to improve carrier connectivity and visibility through DSGX’s Freight Visibility Solution called Descartes MacroPoint.
Moreover, on September 25, DSGX announced that Cardinal Global Logistics, the world's largest employee-owned logistics business, had scaled its Customs Bureau using the Descartes e-Customs™ solution.
Both these developments suggest that DSGX is actively expanding its market presence and providing solutions that address the evolving needs of logistics and supply chain businesses, making it a noteworthy player in the industry.
DSGX’s revenues increased 16.6% year-over-year to $143.39 million in the fiscal second quarter that ended July 31, 2023. Its income from operations came in at $36.83 million, up 16.7% from the year-ago quarter. Its adjusted EBITDA increased 12.2% year-over-year to $60.60 million.
Moreover, its net income increased 22.8% year-over-year to $28.12 million, and EPS rose 18.5% from the prior-year quarter to $0.32.
DSGX’s revenue and EPS for the fiscal third quarter ending October 2023 are expected to increase 18.7% and 14.4% year-over-year to $144.14 million and $0.35, respectively. It surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of DGSX have gained 10.8% over the past year to close the last trading session at $74.14.
DSGX’s sound outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Stability and B for Sentiment and Quality. Within the same industry, it is ranked #5.
In addition to the POWR Ratings highlighted above, one can access DSGX’s additional Growth, Value, and Momentum ratings here.
Stock #1: DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions in the United States and internationally. The company offers a DocuSign e-signature solution that enables sending and signing agreements on various devices.
DOCU’s trailing-12-month 79.46% trailing-12-month gross profit margin is 61.8% higher than the 47.10% industry average. Its levered FCF margin of 36.52% is 394.7% higher than the 7.38% industry average.
On September 7, DOCU announced an increase of $300 million in its existing stock repurchase program, bringing the total aggregate amount available for stock repurchases to $500 million.
On July 25, 2023, DOCU introduced Liveness Detection for ID Verification, a new feature within its identity verification offerings. This technology utilizes AI-driven biometric checks to validate signers' identities, confirm their physical presence during signing, and verify the legitimacy of their IDs.
Created in collaboration with Onfido, this feature seamlessly integrates into DocuSign's eSignature workflow, simplifying the process of secure agreements without requiring multiple platforms.
DOCU’s total revenue rose 10.5% year-over-year to $669.37 million in the second quarter that ended July 31, 2023. Its non-GAAP gross profit increased 11.3% from the prior-year quarter to $565.79 million.
Moreover, its non-GAAP net income rose 66% year-over-year to $149.62 million. The company’s non-GAAP net income per share came in at $0.72, representing an increase of 63.6% year-over-year.
The company maintains a positive financial projection for the full year ending January 31, 2024. Total revenue for the year is expected to be in the range of $2,725 million to $2,737 million, with subscription revenue between $2,649 million and $2,661 million and billings ranging from $2,804 million to $2,824 million.
In addition, the company aims to sustain a robust non-GAAP gross margin of 81% to 82% throughout the year, along with a favorable non-GAAP operating margin in the 23% to 24% range.
Street expects DOCU’s EPS and revenues to increase 11% and 6.9% year-over-year to $0.63 and $690.18 million, respectively, in the fiscal third quarter ending October 2023. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
Shares of DOCU declined 4.2% intraday to close the last trading session at $40.45.
DOCU’s POWR Ratings reflect robust prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value and Quality. DOCU is ranked #3 in the same industry.
To access DOCU’s Momentum, Stability, and Sentiment ratings, click here.
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DOCU shares were trading at $40.29 per share on Friday morning, down $0.16 (-0.40%). Year-to-date, DOCU has declined -27.30%, versus a 15.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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