The thriving software industry remains supported by the steady embrace of digital technologies that are currently in the process of reshaping the market landscape. With that in mind, I have highlighted three fundamentally sound software stocks, Atlassian Corporation (TEAM), Creative Realities, Inc. (CREX), and Docebo Inc. (DCBO), which are backed by promising analyst sentiment.
Software application companies’ role extends beyond mere design and development; they are integral in crafting, launching, and maintaining software solutions vital for data collection, storage, analysis, and reporting across diverse business functions. Corporate investment largely propels demand in this sector, while the profitability of individual firms is contingent upon a blend of technical prowess and strategic marketing initiatives.
Gartner’s projections add weight to the industry’s potential, forecasting an 8% surge in global IT spending, reaching $5.10 trillion in 2024. Software spending, in particular, is poised for a substantial 13.8% uptick from the previous year, soaring to an estimated $1.04 trillion. The advent of generative AI initiatives is expected to serve as a catalyst, fueling tech spending in the present year and beyond.
Organizations spanning finance, healthcare, retail, and manufacturing sectors are increasingly adopting application development software to create tailored applications. These solutions are designed to address specific business needs, enhancing operational efficiency and customer experiences alike.
With the escalating demand for tailored software solutions designed to meet specific business needs, the global application development software market is expected to escalate from $252.97 billion in 2023 to an impressive $1.45 trillion by 2031. In 2024, software market revenue is forecasted to hit $698.80 billion, with the lion’s share ($353.50 billion) expected to originate from the United States alone.
Given the industry tailwinds, let’s look at the fundamentals of these stocks in detail, beginning with number 3.
Stock #3: Atlassian Corporation (TEAM)
Headquartered in Sydney, Australia, TEAM designs, develops, licenses, and maintains various software products globally. The company’s offerings include Jira Software, Jira Work Management, and Confluence.
TEAM’s trailing-12-month gross profit margin of 81.86% is 67% higher than the 49.03% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.94x is 53% higher than the 0.61x industry average. Also, its 29.95% trailing-12-month levered FCF margin compares to the 9.92% industry average.
During the third quarter that ended March 31, 2024, TEAM’s total revenue increased 29.9% year-over-year to $1.19 billion. Its non-GAAP operating income rose 60.6% from the year-ago value to $316.52 million. The company’s non-GAAP net income rose 68.5% year-over-year to $232.49 million, while its net income per share increased 64.8% year-over-year to $0.89. Also, its free cash flow stood at $554.87 million, up 58.7% from the same period last year.
For the fourth quarter (ending June 2024), the company anticipates its total revenue to fall between $1.12 billion and $1.14 billion, with a robust cloud revenue growth of 32% year-over-year. The gross margin is expected to be approximately 83.5% on a non-GAAP basis, highlighting healthy profitability.
The consensus EPS estimate of $0.61 for the fourth quarter represents a 6.3% year-over-year improvement. The consensus revenue estimate of $1.13 billion for the current quarter represents a 20.3% increase from the same period last year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 30.9% over the past year to close the last trading session at $182.21.
TEAM’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 an A grade for Growth, Sentiment, and Quality and is ranked #36 in the 136-stock Software - Application industry.
Beyond what is stated above, we have also given TEAM grades for Value, Momentum, and Stability. Get all the TEAM ratings here.
Stock #2: Creative Realities, Inc. (CREX)
CREX provides digital marketing solutions globally, focusing on digital signage and media to enhance communication in out-of-home environments. Its offerings include digital merchandising systems, omni-channel customer engagement systems, interactive shopping assistants, kiosks, and other interactive marketing technologies.
On May 15, 2024, CREX announced plans to expand into EMEA, with a beta launch slated for 2024 to EMEA Integrators. Positioned to serve EMEA digital signage integrators shifting towards a SaaS business model, CREX offers enterprise-level CMS platforms like ClarityHub™ for food service and restaurant segments, ReflectView™ for Retail, and AdLogic™ for ad-serving and programmatic integration, targeting key growth verticals.
Furthermore, the company’s rapid growth in the digital signage software platform space has earned CREX recognition as one of the fastest-growing platforms in 2023 by Invidis Consulting. With 275,000 active licenses and sustained growth outpacing the market, it remains a frontrunner in the industry, as highlighted in the 2023 Yearbook.
For the first quarter that ended March 31, 2024, CREX’s total sales increased 23.5% year-over-year to $12.29 million. Service revenue rose 44.8% from the same period last year to $8.14 million, driven by higher installation and managed services. Notably, installation service revenue surged by $1.20 million (128% year-over-year) due to significant deployment activity during the period.
CREX’s gross profit grew 13.3% from the prior-year quarter to $5.76 million. Also, the company’s EBITDA improved by 65.3% from the year-ago value to $1.41 million.
Street expects CREX’s revenue for the current quarter (ending June 2024) to increase 52.2% year-over-year to $14 million. For the fiscal year 2024, its revenue is expected to reach $60.09 million, registering a year-over-year growth of 33%.
The stock’s trailing-12-month levered FCF margin of 22.3% is 188.8% higher than the industry average of 7.71%. Also, its 0.71x asset turnover ratio is higher compared to the industry average of 0.49x by 45.8%.
Shares of CREX have gained 85.9% over the past six months and 56.8% year-to-date to close the last trading session at $3.70.
CREX’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
CREX has an A grade for Sentiment and a B for Growth. It ranks #25 of 136 stocks in the same industry. Click here to see CREX’s ratings for Value, Momentum, Stability, and Quality.
Stock #1: Docebo Inc. (DCBO)
Headquartered in Toronto, Canada, DCBO operates as a learning management software company that provides Artificial Intelligence (AI)-powered learning platforms in North America, Europe, and the Asia-Pacific region. It offers a Learning Management System (LMS) to train internal and external workforces, partners, and customers.
On May 9, 2024, the company announced a significant new customer win with Ansys, a global leader in engineering simulation software. With over 50 years of innovation, Ansys is now collaborating with DCBO to develop a scalable customer learning academy designed to fuel growth and equip its expanding customer base with the essential tools for success.
Moreover, working with government distributor partner Carahsoft, DCBO is expanding its agreement with a state agency within the Department of Transportation to address their onboarding, compliance, and leadership training needs. This move into government services enhances DCBO’s credibility and reach within public sector organizations, paving the way for additional government contracts.
On the same day, DCBO announced that it was selected by the Centre for Addiction and Mental Health (CAMH) to address its external training requirements for customer and partner education and membership training.
In terms of the trailing-12-month gross profit margin, DCBO’s 80.88% is 64.9% higher than the 49.03% industry average. Its 15.03% trailing-12-month levered FCF margin is 51.6% higher than the 9.92% industry average. Likewise, the stock’s 4.16% trailing-12-month ROTC is 70.8% higher than the 2.43% industry average.
DCBO’s revenues for the fiscal first quarter ended March 31, 2024, increased 24% year-over-year to $51.40 million. Its gross profit rose 24.2% from the prior-year quarter to $41.48 million. The company’s adjusted net income came in at $7.27 million and $0.23 per share, representing increases of 125.4% and 155.6% year-over-year, respectively.
Also, its adjusted EBITDA stood at $7.47 million, up 237.9% year-over-year. DCBO also reported a free cash flow of $9.20 million, compared to a negative $2.29 million in the same period last year.
As of March 31, 2024, DCBO’s customer base has grown to 3,833, up 9.3% from 3,506 at the end of the same quarter in 2023. Additionally, the Average Contract Value has increased 11.6% year-over-year, reaching $52,492 per customer.
For the fiscal year 2024, DCBO expects total revenue growth between 17% and 18.5%, with an adjusted EBITDA forecasted to fall between 14.5% and 15.5% of total revenue.
Analysts expect DCBO’s EPS and revenues to increase 71.4% and 20% year-over-year to $0.24 and $52.32 million in the second quarter ending June 2024, respectively. Moreover, the company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is excellent.
Over the past year, the stock has gained 14.9% to close the last trading session at $36.97.
It’s no surprise that DCBO has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Growth, Sentiment, and Quality. Within the Software - Application industry, it is ranked #8. To see DCBO’s Value, Momentum, and Stability ratings, click here.
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TEAM shares were trading at $181.05 per share on Friday afternoon, down $1.16 (-0.64%). Year-to-date, TEAM has declined -23.88%, versus a 11.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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