From commerce to culture, software is digitizing every aspect of our lives. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the last six months, the industry’s 47.5% return has topped the S&P 500 by 29.1 percentage points.
Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. With that said, here are three resilient software stocks at the top of our wish list.
ServiceNow (NOW)
Market Cap: $145.5 billion
Built on a single code base that processes more than 80 billion workflows and 6.5 trillion transactions annually, ServiceNow (NYSE: NOW) provides a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.
Why Is NOW a Good Business?
- ARR growth averaged 22.3% over the last year, showing customers are willing to take multi-year bets on its software
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Robust free cash flow margin of 33.4% gives it many options for capital deployment
At $140.55 per share, ServiceNow trades at 8x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Freshworks (FRSH)
Market Cap: $3.36 billion
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ: FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Why Does FRSH Stand Out?
- Software offerings and brand resonate with consumers, as seen in its above-market 24% annual sales growth over the last five years
- Prominent and differentiated software culminates in a top-tier gross margin of 85%
- FRSH is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Freshworks is trading at $12.67 per share, or 3.3x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Samsara (IOT)
Market Cap: $22.89 billion
From sensors on vehicles to AI-powered cameras that help prevent accidents, Samsara (NYSE: IOT) is a cloud-based Internet of Things platform that helps businesses improve the safety, efficiency, and sustainability of their physical operations.
Why Is IOT a Top Pick?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Projected revenue growth of 20.9% for the next 12 months suggests its momentum from the last two years will persist
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
Samsara’s stock price of $39.08 implies a valuation ratio of 10.1x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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