The NASDAQ Composite, known for its tech-heavy composition, has demonstrated a robust performance, yielding a return of 35.7% over the last year. This signifies strong momentum and positive outcomes within the technology sector. Additionally, the surge in enterprise data, automation, and digitization is propelling the growth of the tech market. So, investors could consider buying quality tech stocks Smartsheet Inc. (SMAR), Docebo Inc. (DCBO), and Yalla Group Limited (YALA) for solid gains.
In 2024, key tech trends include the rise of neuromorphic computing for precision in various applications, human-centric AI automating incident response, the Metaverse expanding beyond gaming, Web 3.0 revolutionizing the internet with AI, and cleantech dominating for sustainability.
Moreover, as per the latest forecast from Gartner, global software spending is forecasted to grow 12.7% this year to reach $1.03 trillion. The global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030.
Moreover, the market for application development software is driven by the increased adoption of cloud-based solutions, the integration of IoT technology, and the growing demand for sophisticated applications. The utilization of low-code development platforms and the emphasis on DevOps and digitization further contribute to the market's expansion.
The market for application development software is expected to generate $179.90 billion in revenue in 2024. By 2028, this growth is anticipated to result in a market volume of $234.70 billion, expanding at a 6.9% CAGR.
Furthermore, organizations are channeling substantial investments into cloud-based software services, specifically Software-as-a-Service (SaaS). This trend is fueled by the efficiency of such services, a shift towards business outsourcing, the simplicity of scalability, and an increased level of adaptability.
The global SaaS market is projected to grow at a CAGR of 18.7% to reach $908.21 billion by 2030.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks in the tech industry.
Smartsheet Inc. (SMAR)
SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.
SMAR’s trailing-12-month gross profit margin of 79.79% is 62.2% higher than the industry average of 49.19%. Its 26.69% trailing-12-month levered FCF margin is 203.5% higher than the 8.79% industry average.
On January 17, 2024, SMAR announced the achievement of a significant milestone, reaching $1 billion in annualized recurring revenue (ARR) in the fourth quarter. This accomplishment follows the company's recognition as a Leader in the December 2023 Gartner® Magic Quadrant™ for Collaborative Work Management and leadership acknowledgments in two IDC reports.
On October 23, 2023, SMAR launched the Smartsheet Region in Australia, catering to the Asia-Pacific-Japan (APJ) market. This expansion allows clients like Fox Sports Australia and Wine Australia to store their data locally, complying with data residency requirements. The new region ensures high availability, scalability, and adherence to diverse frameworks and regulatory standards.
During the third quarter, which ended October 31, 2023, SMAR’s total revenues rose 23.2% year-over-year to $245.92 million. Its non-GAAP operating income came in at $19.36 million, compared to an operating loss of $4.31 million.
The company’s non-GAAP net income came in at $22.59 million, compared to a net loss of $1.89 million. Additionally, its non-GAAP EPS came in at $0.16, compared to a loss per share of $0.01 in the year-ago quarter.
Street predicts SMAR’s EPS and revenue to increase 158.7% and 20.4% year-over-year to $0.18 and $255.66 million, respectively for the quarter ending January 2024. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 14.9% over the past three months to close the last trading session at $46.44.
SMAR’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 are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Sentiment, Growth, and Quality. It is ranked #8 among 21 stocks in the A-rated Software – SAAS industry.
To see SMAR’s Value, Momentum, and Stability ratings, click here.
Docebo Inc. (DCBO)
Based in Toronto, Canada, DCBO is an AI-powered learning management software company offering a cloud-based platform for personalized training and content creation. The company specializes in Learning Management Systems (LMS) for internal and external workforce development.
DCBO’s trailing-12-month gross profit margin of 80.86% is 64.4% higher than the 49.19% industry average. Its trailing-12-month levered FCF margin of 18.18% is 106.8% higher than the 8.79% industry average.
During the third quarter ended September 30, 2023, DCBO’s revenue and gross profit grew 25.8% and 26.5% from the previous-year quarter to $46.51 million and $37.73 million, respectively. Its subscription revenue rose 27.2% year-over-year to $43.59 million.
The company reported adjusted net income and EBITDA of $4.95 million and $4.51 million, up 236.4% and 616.2% year-over-year, respectively. Also, its free cash flow increased significantly from the prior-year quarter to $8.35 million.
Street expects DCBO’s revenue to increase 24.3% year-over-year to $48.43 million for the fiscal fourth quarter ended December 2023. Its EPS is likely to rise 98% year-over-year to $0.14 in the same quarter. It surpassed EPS estimates in each of the four trailing quarters.
The stock has gained 25.1% over the past year to close the last trading session at $44.81.
It’s no surprise that DCBO has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #12 out of 132 stocks in the Software – Application industry.
Beyond what is stated above, we’ve also rated DCBO for Stability, Value and Momentum. Get all DCBO ratings here.
Yalla Group Limited (YALA)
Based in Dubai, the United Arab Emirates, YALA runs a social networking and entertainment platform in the Middle East and North Africa, featuring voice-centric group chat on Yalla and casual gaming on Yalla Ludo. The platform offers group chatting, gaming services, virtual item sales, and upgrade options.
YALA’s trailing-12-month EBIT and EBITDA margins of 28.13% and 32.42% are 223.4% and 898.1% higher than the industry averages of 8.70% and 3.25%.
In the fiscal third quarter ended September 30, 2023, YALA witnessed a 6.4% year-over-year increase in revenues, reaching $85.19 million. The company achieved a non-GAAP operating income of $35.45 million and a net income of $38.28 million, growing 20.4% and 30.3%, respectively, compared to the corresponding quarter in the previous year. Additionally, the non-GAAP EPS experienced a surge of 23.5% from the same quarter in the prior year, reaching $0.21.
Looking ahead to the fourth quarter of 2023, YALA anticipates revenues to fall within the range of $73 million to $80 million.
Analysts expect YALA’s revenue and EPS to grow 4.7% and 24.2% year-over-year to $317.85 million and $0.75, respectively, for the fiscal year ended December 2023. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 45.9% over the past nine months to close the last trading session at $5.31. It soared 22.6% over the past year.
YALA’s POWR Ratings reflect a sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Sentiment, and Quality. Within the Software – Application industry, it is ranked #6.
Click here for YALA’s additional Growth, Momentum, and Stability ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SMAR shares rose $0.55 (+1.18%) in premarket trading Wednesday. Year-to-date, SMAR has declined -2.89%, versus a 2.01% 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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