The software industry experiences transformative trends, including Artificial Intelligence (AI)-driven development, widespread adoption, and significant spending. Therefore, investors could consider securing top software stocks Agilysys, Inc. (AGYS), Docebo Inc. (DCBO), and MarketWise, Inc. (MKTW).
According to Gartner, investments in AI are expected to bolster tech spending as businesses turn toward automation and generative AI to streamline operations. Software spending is expected to grow 13.8% from the prior year to reach $1.04 trillion in 2024.
Moreover, the global business software and services market is propelled by increased enterprise data, automation, and cloud adoption, with notable trends in finance and HR software. Globally, the business software and services market is projected to grow at a CAGR of 11.9% from 2023 to 2030.
Simultaneously, the software application industry is set for substantial growth driven by increasing demand from various sectors, supported by factors like cloud-based adoption and on-premise solutions, leading to a robust annual growth rate from 2023 to 2030.
The U.S. application development software market is anticipated to reach $85.66 billion in revenue by 2023, with a CAGR of 5.8% to reach $113.70 billion by 2028, while the global market for application development software is projected to expand at a CAGR of 20.6% by 2028.
Considering these conducive trends, let’s examine the fundamentals of the three software stock picks.
Agilysys, Inc. (AGYS)
AGYS is a global hospitality technology company providing hardware and software solutions worldwide. Specializing in point of sale, property management, and related services, the company aims to enhance guest experiences across various industries, including hotels, resorts, casinos, restaurants, and more.
On November 14, the Community Health System in Fresno County, California, improved food service for staff by replacing its restaurant takeout app with AGYS OnDemand, a mobile POS solution. This upgrade streamlines ordering, payment, and pickup, resulting in a 78.9% sales increase at one hospital location during the pandemic.
The mobile platform enhances convenience, provides text alerts, and supports flexible payment methods, significantly boosting overall food quality and staff satisfaction.
AGYS’ trailing-12-month gross profit margin of 60.28% is 23.9% higher than the industry average of 48.67%. Its 5.83% trailing-12-month EBIT margin is 24.3% higher than the 4.69% industry average.
For the second fiscal quarter ended September 30, 2023, AGYS generated total net revenue and gross profit of $58.62 million and $35.10 million, up 22.8% and 19.5% from the previous year’s quarter, respectively. The company’s adjusted net income and adjusted EPS increased 5.5% and 4.2% from the prior-year period to $6.63 million and $0.25, respectively.
Street expects AGYS’ revenue and EPS to grow 17.8% and 10.6% year-over-year to $62.33 million and $0.29, respectively, for the fourth quarter ending March 2024. AGYS’ shares increased 36.6% over the past year and 29.5% over the past three months to close the last trading session at $89.07.
AGYS’ POWR Ratings reflect its positive prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AGYS has an A grade for Sentiment and a B for Growth and Quality. Within the B-rated Software - Business industry, it is ranked #12 out of 44 stocks.
In addition to the POWR Ratings stated above, one can access AGYS’ additional Value, Momentum, and Stability ratings here.
Docebo Inc. (DCBO)
DCBO, headquartered in Toronto, Canada, is a learning management software company providing a cloud-based platform with AI-powered features for personalized learning. Its offerings include content creation tools, off-the-shelf materials, measurement, analytics, integration solutions, and products for mobile learning and extended enterprise education.
On September 28, DCBO launched "Docebo for Microsoft Teams" on Microsoft AppSource and Teams Store, seamlessly integrating its learning platform with Teams to improve learner engagement and streamline training processes.
Users can access personalized training dashboards, collaborate without switching platforms, and easily manage courses within Teams, fostering a culture of continuous learning and professional growth.
DCBO’s trailing-12-month gross profit margin of 80.86% is 66.1% higher than the industry average of 48.67%. Its 18.18% trailing-12-month levered FCF margin is 124% higher than the 8.12% industry average.
For the third quarter ended September 30, 2023, DCBO’s revenue and gross profit grew 25.8% and 26.5% year-over-year to $46.51 million and $37.73 million. Its adjusted net income and adjusted net income per share came in at $4.95 million and $0.15, up 236.4% and 275% from the prior-year quarter, respectively.
DCBO’s revenue and EPS are expected to grow 24.3% and 90.5% year-over-year to $48.43 million and $0.13 for the fourth quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
Shares of DCBO increased 50.3% over the past year and 24.5% over the past month to close the last trading session at $46.40.
DCBO’s POWR Ratings reflect this robust outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
DCBO has an A grade for Sentiment and Quality and a B for Growth. Within the Software - Application industry, it is ranked #13 among 132 stocks.
Click here for DCBO’s additional Value, Momentum, and Stability ratings.
MarketWise, Inc. (MKTW)
MKTW operates a multi-brand platform for self-directed investors, offering subscription-based financial research, software, education, and tools for various investment strategies. The platform includes brands like Chaikin Analytics and TradeSmith, providing stock research tools, portfolio management services, and proprietary indicators.
On October 18, MKTW declared a regular dividend of $0.01 per share, payable to shareholders on January 25, 2024. Its dividend distribution totals approximately $2.90 million. The company’s annual dividend of $0.04 yields 1.18% on prevailing prices.
MKTW’s trailing-12-month gross profit margin of 87.34% is 44.7% higher than the industry average of 60.37%. Its 1.05x trailing-12-month asset turnover ratio is 395.4% higher than the 0.21x industry average.
For the fiscal third quarter (ended September 30, 2023), MKTW reported a total net revenue of $106.15 million. For the nine months ended September 30, the company’s net cash provided by operating activities stood at $44.90 million, up 18.9% year-over-year, while its cash, cash equivalents, and restricted cash balance rose 31.8% from the prior-year quarter to $194.02 million.
Analysts expect MKTW’s revenue to grow 16.9% year-over-year to $121.13 million for the second quarter ending June 2024. The EPS is expected to grow significantly from the prior year to $0.07 for the same period. The stock has gained 56.9% over the past year and 101.8% year-to-date to close the last trading session at $3.39.
MKTW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
MKTW has an A grade for Value and a B for Sentiment and Quality. Within the Software - Application industry, it is ranked #16.
To see MKTW’s additional POWR Ratings for Growth, Momentum, and Stability, click here.
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.
AGYS shares were trading at $86.86 per share on Tuesday afternoon, down $2.21 (-2.48%). Year-to-date, AGYS has gained 9.75%, versus a 20.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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