From commerce to culture, software is digitizing every aspect of our lives. This secular theme makes SaaS companies attractive investment candidates but also comes with higher valuations that make re-ratings harder. Unfortunately, the rich prices have haunted them over the past six months as the industry was flat while the S&P 500 was up 15.3%.

A cautious approach is imperative when dabbling in these businesses as the best will deliver robust earnings growth while the rest will be disrupted by competition and AI. Taking that into account, here is one software stock poised to generate sustainable market-beating returns and two best left ignored.

Two Software Stocks to Sell:

Upstart (UPST)

Market Cap: $3.76 billion

Using over 2,500 data variables and trained on nearly 82 million repayment events, Upstart (NASDAQ: UPST) is an AI-powered lending platform that uses machine learning to help banks and credit unions more accurately assess borrower risk for personal loans, auto loans, and home equity lines of credit.

Why Do We Think Twice About UPST?

1. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $39.27 per share, Upstart trades at 3.5x forward price-to-sales. To fully understand why you should be careful with UPST, check out our full research report (it’s free for active Edge members).

Integral Ad Science (IAS)

Market Cap: $1.72 billion

Processing over 280 billion digital ad interactions daily through its AI-powered technology, Integral Ad Science (NASDAQ: IAS) provides a cloud-based platform that measures and verifies digital advertising across devices, channels, and formats to ensure ads are viewable, fraud-free, and brand-safe.

Why Is IAS Not Exciting?

1. Annual revenue growth of 13.6% over the last two years was below our standards for the software sector
2. Operating margin expanded by 1 percentage points over the last year as it scaled and became more efficient
3. Free cash flow margin is forecasted to shrink by 10.1 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

Integral Ad Science’s stock price of $10.25 implies a valuation ratio of 2.6x forward price-to-sales. Check out our free in-depth research report to learn more about why IAS doesn’t pass our bar.

One Software Stock to Watch:

Toast (TOST)

Market Cap: $21.76 billion

Born from the frustrations of three friends waiting too long for their restaurant bill, Toast (NYSE: TOST) provides a cloud-based digital technology platform with software, payment processing, and hardware solutions built specifically for restaurants.

Why Are We Positive On TOST?

1. Ability to secure long-term commitments with customers is evident in its 31.3% ARR growth over the last year
2. Estimated revenue growth of 20.8% for the next 12 months implies its momentum over the last two years will continue

Toast is trading at $37.25 per share, or 3.2x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

Stocks We Like Even More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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