SaaS leads in cloud computing for its versatility, scalability, cost-effectiveness, seamless integration, global accessibility, and customer support. Modern enterprises rely on SaaS for efficiency and innovation, benefiting from its adaptability, collaborative tools, and robust security.
Amid this digital transformation, investors could consider keeping an eye on robust SaaS stocks such as Smartsheet Inc. (SMAR), Informatica Inc. (INFA), and DocuSign, Inc. (DOCU), given their strong growth potential.
Cloud-based software services now dominate over traditional software applications. Hence, Gartner predicts SaaS spending will grow by 20% this year, reaching $247.2 billion. Enterprises are investing in digital transformation, adopting trends like Vertical SaaS, DaaS, and iPaaS to enhance system connectivity, manage data effectively, and meet industry-specific needs.
Notably, SaaS eliminates costly IT investments and maintenance, providing flexibility via web and mobile access. It boosts efficiency, customer service, and cuts IT expenses, appealing to businesses for agility. The global SaaS market is projected to grow at a 6.2% CAGR, reaching $325.84 billion by 2028, reflecting its dynamic growth and innovation potential.
Furthermore, GSA's policy change supports SaaS growth by making it easier for governments to adopt, boosting market stability and investment prospects. The rapid expansion of SaaS in cloud computing is transforming software delivery. The software market is projected to reach $858.10 billion, growing at a 5.3% CAGR from 2024 to 2028.
Now, let's take a closer look at the fundamentals of the Software – SAAS stocks mentioned above, beginning with the third choice.
Stock #3: Smartsheet Inc. (SMAR)
SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.
SMAR’s Total Assets grew at a CAGR of 13.4% over the past three years. Similarly, its revenue grew at a CAGR of 33.9% during the same period.
In terms of the trailing-12-month levered FCF margin, SMAR’s 28.54% is 190.5% higher than the 9.83% industry average. Likewise, its 81.14% trailing-12-month gross profit margin is 65.4% higher than the 49.06% industry average. Additionally, its 0.83x trailing-12-month asset turnover ratio is 32.7% higher than the industry average of 0.62x.
For the first quarter, which ended April 30, 2024, SMAR’s total revenues rose 19.6% year-over-year to $262.98 million. Its non-GAAP operating income came in at $42.09 million, up 84.6% over the prior-year quarter.
For the same quarter, the company’s non-GAAP net income rose 77.1% from the year-ago value to $44.36 million. Furthermore, its non-GAAP EPS came in at $0.32, representing an increase of 77.8% year-over-year.
Analysts expect SMAR’s EPS and revenue for the quarter ending July 31, 2024, to increase 83.7% and 16.4% year-over-year to $0.29 and $274.25 million, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters. SMAR’s stock has gained 13.2% over the past year to close the last trading session at $42.85.
SMAR’s positive outlook is reflected in its POWR Ratings. It 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.
It is ranked #6 out of 19 stocks in the A-rated Software – SAAS industry. It has an A grade for Growth and Sentiment and a B for Quality. To see SMAR’s Value, Momentum, and Stability ratings, click here.
Stock #2: Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at enterprise scale in the United States.
On June 10, 2024, INFA announced new innovations for its Intelligent Data Management Cloud platform, including a Generative AI blueprint and full Unity Catalog support for Databricks. INFA also introduced native Databricks SQL ELT support and a free Data Integration Service through Databricks Partner Connect.
On June 4, 2024, INFA announced new generative AI capabilities and native app offerings for Snowflake, including Native SQL ELT support for Cortex AI Functions, Enterprise Data Integrator (EDI), and Cloud Data Access Management (CDAM). These updates are designed to improve data integration and governance across the Snowflake AI Data Cloud.
INFA’s revenue grew at a CAGR of 6.3% over the past three years, and its EBIT grew at a CAGR of 16.5% during the same period.
In terms of the trailing-12-month EBIT margin, INFA’s 6.40% is 27.5% higher than the 5.02% industry average. Its 15.70% trailing-12-month EBITDA margin is 58.4% higher than the industry average of 9.91%. Also, its 79.72% trailing-12-month gross profit margin is 62.5% higher than the industry average of 49.06%.
INFA’s total revenues for the fiscal first quarter that ended March 31, 2024, increased 6.3% year-over-year to $388.61 million. Its non-GAAP net income rose 55.1% from the year-ago quarter to $69.22 million. INFA’s non-GAAP net income per share grew 46.7% year-over-year to $0.22. In addition, its adjusted EBITDA stood at $111.47 million, up 25.2% over the prior-year quarter.
For the quarter ended June 30, 2024, INFA’s EPS is expected to increase 29% year-over-year to $0.22. Its revenue for the same quarter is expected to rise 7.2% year-over-year to $403.10 million. INFA surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 61.4% to close the last trading session at $28.40.
INFA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #5. To access the additional POWR Ratings for INFA for Value, Momentum, and Stability, click here.
Stock #1: DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions internationally. The company offers DocuSign e-signature solution that enables sending and signing of agreements on various devices.
On June 4, 2024, DOCU announced the launch of its new Connector for SAP Ariba solutions, which automates workflows between DOCU’s CLM and SAP Ariba to streamline source-to-pay agreement processes. The new connector will be available globally starting in September and will be unveiled at SAP Sapphire events.
On May 31, 2024, DOCU announced the completion of its acquisition of Lexion, an AI-powered agreement management company. This acquisition enhances DOCU’s Intelligent Agreement Management platform with advanced AI capabilities for faster contract reviews, negotiations, and automated processes.
DOCU’s revenue grew at a CAGR of 29.9% over the past five years. Likewise, its levered FCF grew at a CAGR of 19.9% over the past three years.
In terms of the trailing-12-month net income margin, DOCU’s 3.81% is 19% higher than the 3.21% industry average. Likewise, its 3.42% trailing-12-month Capex / Sales is 49.9% higher than the 2.28% industry average. Furthermore, its 11.37% trailing-12-month Return on Common Equity is 162.2% higher than the 4.33% industry average.
DOCU’s total revenues for the first quarter that ended April 30, 2024, rose 7.3% year-over-year to $709.64 million. The company’s non-GAAP income from operations stood at $202.09 million, up 15% from the previous year’s quarter. Additionally, DOCU’s non-GAAP net income came in at $172.84 million and $0.82 per share, representing 15.1% and 13.9% year-over-year, respectively.
Street expects DOCU’s EPS and revenue for the quarter ending July 31, 2024, to increase 11.7% and 5.7% year-over-year to $0.80 and $727.17 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 24.9% to close the last trading session at $52.94.
DOCU’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary system.
It is ranked #2 in the Software – SAAS industry. It has an A grade for Growth and Quality and a B for Value. Click here to see TWLO’s Momentum, Stability, and Sentiment 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.
DOCU shares were trading at $53.18 per share on Wednesday afternoon, up $1.27 (+2.45%). Year-to-date, DOCU has declined -10.55%, versus a 18.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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