4 Software Stocks With Year-End Potential

This year, the software industry has seen impressive gains, benefiting from the AI hype, heightened investments, and the growing economy. So, robust software stocks Check Point Software Technologies Ltd. (CHKP), Smartsheet Inc. (SMAR), SolarWinds Corporation (SWI), and OppFi Inc. (OPFI) could be ideal investments for year-end gains.

Growing investments in public cloud services, cybersecurity, and business application software bolster the software industry. According to Gartner, the software spending is expected to grow by 13.8% in 2024. Moreover, the global software market is estimated to grow at a 12.2% CAGR until 2029.

Moreover, the software industry is experiencing significant growth as businesses invest in digital transformation. The Software as a Service (SaaS) model, known for scalability and remote work capabilities, is a leading choice, propelling it to become one of the fastest-growing sectors in IT.

The global SaaS market is expected to reach $720.44 billion by 2028, growing at a CAGR of 25.9%.

Furthermore, the software market’s growth is boosted by heightened concerns surrounding network security and privacy. The security market is witnessing growth due to an increasing number of cyber-attacks driven by the rise of e-commerce platforms, the advent of smart devices, and widespread cloud deployment.

The global cyber security market is expected to grow at CAGR of 12.3% until 2030.

Given the industry tailwinds, it's time to examine the fundamentals of the top four stocks to watch in the software industry.

Check Point Software Technologies Ltd. (CHKP)

Headquartered in Tel Aviv, Israel, CHKP develops, markets, and supports a range of products and services for IT security worldwide. The company offers a multilevel security architecture, cloud, network, mobile devices, endpoint information, and IOT solutions. It offers security gateways and software platforms. It also provides cloud network security, security and posture management, cloud workload protection, etc.

On December 4, CHKP revealed that the Denver Broncos, an NFL professional football club, had been using their cybersecurity solutions, CloudGuard, Quantum, and Harmony, to secure Empower Field at Mile High, its team, and staff. The unified platform ensures seamless protection for the Broncos' network, perimeter, and cloud applications.

On October 23, CHKP announced a significant expansion to its Check Point Infinity Global Services suite. With a heightened demand driven by the global shortage of cybersecurity professionals and a surge in cyber-attacks, businesses are increasingly seeking advanced tools and expertise for managed network security, secure cloud transition, and managed detection and remediation (MDR) services.

During the third quarter ended September 30, 2023, CHKP’s non-GAAP total revenues increased 3.2% year-over-year to $596.30 million. Its non-GAAP operating income increased 2.4% over the prior-year quarter to $269 million. The company’s non-GAAP net income rose 9.7% year-over-year to $242.40 million. Also, its adjusted EPS increased 16.9% year-over-year to $2.07.

CHKP’s EPS and revenue are expected to increase 1.1% and 3.7% year-over-year to $2.48 and $661.96 million in the fiscal fourth quarter ending December 31, 2023, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 14.8% year-to-date to close the last trading session at $144.80.

CHKP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has an A grade for Quality. It is ranked #4 out of 23 stocks in the Software – Security industry.

Click here to see CHKP’s Growth, Value, Momentum, Stability, and Sentiment ratings.

Smartsheet Inc. (SMAR)

SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.

On October 23, SMAR announced the establishment of its newest Smartsheet Region in Australia, emphasizing its commitment to better cater to the expanding list of Asia-Pacific-Japan (APJ) customers. This move is a response to SMAR's rapid customer growth in APJ, including its recent expansion into Japan.

On September 19, SMAR revealed its next-generation Smartsheet platform featuring new product capabilities that unlock sophisticated solution building, AI-driven data insights, and massive scale.

During the fiscal second quarter that ended October 31, 2023, SMAR’s number of all customers with annualized contract values (ACV) of $100,000 or more grew to 1,779, an increase of 32% year-over-year. As a result, its total revenue increased 23.2% year-over-year to $245.92 million. Its gross profit stood at $198.88 million, up 26.9% year-over-year.

Moreover, the company reported a non-GAAP operating income of $22.59 million and $0.16 per share, compared to a loss of $1.89 million and $0.01 in the previous-year quarter.

For the fourth quarter, the company projects robust financial performance, expecting total revenue to reach $254 million to $256 million, reflecting a substantial year-over-year growth of 20% to 21%. Non-GAAP operating income is forecasted to be in the range of $21 million to $23 million. Additionally, the company anticipates non-GAAP net income per share between $0.17 and $0.19.

The consensus EPS and revenue estimates of $0.18 and $255.41 million for the fiscal fourth quarter ending January 2024 represent 164.3% and 20.3% rise year-over-year. It has surpassed the revenue estimates in each of the trailing four quarters.

The stock has soared 17.8% over the past nine months, closing the last trading session at $45.14.

SMAR POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It also has an A grade for Sentiment and a B for Growth and Quality. It is ranked #8 among 22 stocks in the A-rated Software - SAAS industry.

Beyond the POWR Ratings stated above, we have also rated SMAR for Value, Momentum, and Stability. Get all the SMAR ratings here.

SolarWinds Corporation (SWI)

SWI provides information technology (IT) management software products. The company offers a portfolio of solutions to technology professionals for monitoring, managing, and optimizing networks, systems, desktops, applications, storage, databases, website infrastructures, and IT service desks.

SWI’s forward non-GAAP P/E of 13.59x is 40.3% lower than the industry average of 22.78x. Its forward EV/EBITDA of 9.16x is 36.4% lower than the industry average of 14.40x.

SWI’s trailing-12-month EBIT margin of 27.07% is 477.1% higher than the 4.69% industry average. Its trailing-12-month EBITDA margin of 35.84% is 295.4% higher than the 9.07% industry average.

On November 14, SWI announced significant enhancements to its Database Observability feature in the SolarWinds® Observability platform, a cloud-based solution for observability and IT management software. This upgrade provides comprehensive visibility into open-source, cloud-enabled, and NoSQL databases, aiding in the identification and resolution of critical threats.

During the fiscal third quarter that ended September 30, 2023, SWI’s total revenue rose 5.7% year-over-year to $189.59 million. Its non-GAAP gross profit and non-GAAP operating income increased 5.4% and 19.7% from the year-ago quarter to $172.13 million and $81.16 million, respectively.

Its non-GAAP net income and non-GAAP earnings per share increased 20.3% and 15% year-over-year to $38.01 million and $0.23, respectively.

SWI anticipates total revenue of $188.50 to $192.50 million and adjusted EBITDA of $80.50 to $82.50 million for the fiscal fourth quarter. For the fiscal year 2023, total revenue is expected to be $749 to $753 million, with adjusted EBITDA of $322 to $324 million. Non-GAAP EPS are estimated to be $0.83 to $0.85.

Street expects SWI’s EPS to grow 10.5% year-over-year to $0.21 in the fiscal fourth quarter ending December 2023. Its revenue for the same quarter is expected to rise 1.8% from the year-ago quarter to $190.40 million. It has surpassed the consensus revenue estimates in each of the four trailing quarters.

The stock has gained 29% over the past year to close the last trading session at $11.62.

SWI’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

It has an A grade for Sentiment and a B for Growth and Value. It is ranked #4 out of 43 stocks in the B-rated Software – Business industry.

To see SWI’s additional Stability, Momentum and Quality ratings, click here.

OppFi Inc. (OPFI) 

OPFI operates a financial technology platform that allows banks to offer lending products. Its platform facilitates OppLoans, an installment loan product; SalaryTap, a payroll deduction secured installment loan product; and OppFi Card, a credit card product.

OPFI’s net revenue for the third quarter that ended September 30, 2023, rose 7.2% year-over-year to $133.17 million. Its adjusted EBITDA rose 149.8% over the prior-year quarter to $33.01 million. The company’s adjusted net income and EPS rose significantly over the prior year quarter to $13.78 million and $0.16, respectively.

For the fiscal year 2023, OPFI expects its total revenue from $500 million to $520 million, reflecting a growth of approximately 10% to 15% year-over-year. The company has increased its adjusted net income guidance to $40 million to $42 million, surpassing the previous range of $29 million to $35 million. Additionally, the company raised its adjusted EPS to $0.47 to $0.49, from the earlier range of $0.34 to $0.41.

Analysts expect OPFI’s EPS and revenue to improve 140% and 7.7% from the previous-year quarter to $0.12 and $129.60 million in the fiscal first quarter ending March 2024. It surpassed the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 151% over the past nine months and 115.6% year-to-date to close the last trading session at $4.42.

OPFI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, representing a Strong Buy in our proprietary rating system.

It has an A grade for Growth, Momentum, and Sentiment and B for Value and Quality. In the 130-stock Software – Application industry, it is ranked #9.

In addition to the POWR Ratings highlighted above, one can access OPFI’s Stability rating here.

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CHKP shares were unchanged in premarket trading Friday. Year-to-date, CHKP has gained 14.77%, versus a 24.79% rise in the benchmark S&P 500 index during the same period.

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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