Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 1.9% over the past six months. This drawdown is a noticeable divergence from the S&P 500’s 13.1% return.

Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. Taking that into account, here are two software stocks we think can generate sustainable market-beating returns and one that may face trouble.

One Software Stock to Sell:

BlackLine (BL)

Market Cap: $3.35 billion

Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ: BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.

Why Does BL Give Us Pause?

1. Offerings struggled to generate meaningful interest as its average billings growth of 7.2% over the last year did not impress
2. Struggled to drive increased usage of its software, demonstrated by its subpar 103% net revenue retention rate
3. Static operating margin over the last year shows it couldn’t become more efficient

BlackLine’s stock price of $57.74 implies a valuation ratio of 4.8x forward price-to-sales. To fully understand why you should be careful with BL, check out our full research report (it’s free for active Edge members).

Two Software Stocks to Watch:

The Trade Desk (TTD)

Market Cap: $18.89 billion

Built as an alternative to "walled garden" advertising ecosystems, The Trade Desk (NASDAQ: TTD) provides a cloud-based platform that helps advertisers and agencies plan, manage, and optimize digital advertising campaigns across multiple channels and devices.

Why Are We Bullish on TTD?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 20.1% over the last year
2. Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
3. Excellent operating margin of 18.9% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last year

At $39.03 per share, The Trade Desk trades at 6x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .

Guidewire Software (GWRE)

Market Cap: $18.06 billion

With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.

Why Are We Fans of GWRE?

1. Billings growth has averaged 21.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
2. Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
3. Robust free cash flow margin of 23.3% gives it many options for capital deployment

Guidewire Software is trading at $213.58 per share, or 13.1x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% 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

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.