The software industry has been witnessing substantial growth due to increasing demand for various software solutions and digital transformation across industries. So, investors could buy this week’s software stocks gainers, Informatica Inc. (INFA), Yext, Inc. (YEXT), and eGain Corporation (EGAN).
Rising enterprise data, automation, and increased cloud adoption accelerated by pandemic remote work trends drive growth in the business software and services market. Innovation with technologies like AI and blockchain enhances operational efficiency and cost-effectiveness for businesses across diverse sectors.
The global business software and services market is projected to grow at a CAGR of 11.9% until 2030.
Furthermore, the increasing demand for various software applications to speed up and simplify business operations using advanced IoT technology and cloud-based solutions is expected to support the application software market growth. The demand for application development software is anticipated to gain steady traction over the coming years, owing to the need for scalable and customized software.
The global application development software market is projected to grow at a CAGR of 24.3% until 2028.
In addition, the rising adoption of public cloud services across enterprises and the growing shift of enterprises towards SaaS from an on-premises model owing to the high cost of on-premises software deployment is projected to propel the software as a service market growth.
The global software as a Service (SaaS) market is projected to grow at a CAGR of 13.7% until 2030.
Considering these conducive trends, let's take a look at the fundamentals of the three best software stocks.
Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at enterprise scale in the United States.
On January 18, 2024, INFA announced that UnionBank of the Philippines, a leading universal bank in the Philippines, has chosen to adopt Informatica’s intelligent Master Data Management (MDM) SaaS as the bank transitions from an on-premises solution to the cloud as part of the Bank’s cloud-first digital transformation strategy.
INFA’s trailing-12-month gross profit margin of 79.33% is 62.5% higher than the 48.82% industry average. Its trailing-12-month EBITDA margin of 79.33% is 62.5% higher than the industry average of 48.82%.
INFA’s total revenues for the fiscal third quarter ended September 30, 2023, increased 9.8% year-over-year to $408.56 million. Its software revenues grew 21.8% from the year-ago quarter to $262.03 million. The company’s non-GAAP net income rose 53.2% from the same quarter last year to $80.62 million, and non-GAAP net income per share increased 50% year-over-year to $0.27.
Street’s revenue estimate of $432.03 million for the fiscal fourth quarter ended December 2023 represents a 8.3% increase year-over-year. Its EPS is expected to increase 23.8% year-over-year to $0.30 for the same quarter. It surpassed EPS and revenue estimates in three of four trailing quarters, which is impressive.
INFA’s shares have gained 95.2% over the past nine months to close the last trading session at $30.12.
INFA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
INFA has an A grade for Growth and a B in Sentiment and Quality. It is ranked first out of 21 stocks in the A-rated Software - SAAS industry.
Click here to see the additional POWR Ratings for INFA (Momentum, Value, and Stability).
Yext, Inc. (YEXT)
YEXT offers a cloud-based platform enabling businesses to control and update their information across various online platforms, helping them answer consumer questions and manage online reviews. The company primarily serves the healthcare, retail, and financial services industries.
YEXT’s trailing-12-month gross profit margin of 77.22% is 58.2% higher than the industry average of 48.82%. Its trailing-12-month levered FCF margin of 14.60% is 63.8% higher than the industry average of 8.92%.
During the fiscal 2024 third quarter that ended October 31, 2023, YEXT’s revenue increased marginally year-over-year to $101.16 million. Its adjusted EBITDA grew 90.7% from the year-ago quarter to $13.51 million. Furthermore, YEXT’s non-GAAP net income attributable to common stockholders stood at $11.29 million and $0.09 per share up 349.4% and 350% year-over-year, respectively.
The consensus revenue estimate of $403.44 million for the year ending January 2024 represents a marginal increase year-over-year. Its EPS is expected to come in at $0.30 for the same year. It surpassed EPS estimate in each of the four trailing quarters.
YEXT’s shares have gained 2.7% over the past month to close the last trading session at $6.17.
YEXT’s POWR Ratings reflect its positive outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B in Value, Sentiment, and Quality. The stock is ranked #2 out of 43 stocks in the B-rated Software - Business industry.
Beyond what is stated above, we’ve also rated for Stability and Momentum. Get all YEXT ratings here.
eGain Corporation (EGAN)
EGAN specializes in developing, licensing, implementing, and supporting customer service infrastructure software solutions. Its main offering is the Knowledge Hub, a unified solution that automates, augments, and orchestrates customer engagement. EGAN provides subscription services for cloud-based access to their software and offers professional services.
On December 5, 2023, EGAN announced that a global investment management company has selected EGAN Knowledge Hub to transform experiences for thousands of contact center agents, financial advisors, and knowledge authors.
EGAN’s trailing-12-month gross profit margin of 71.39% is 46.2% higher than the 48.82% industry average. Its trailing-12-month levered FCF margin of 13.31% is 49.3% higher than the 8.92% industry average.
For the fiscal first quarter ended September 30, 2023, EGAN reported total revenue of $24.18 million. Its gross profit came in at $17.34 million. In addition, the company’s net income came in at $2.60 million, compared to a loss of $16 thousand in the previous-year quarter. Also, its earnings per share came in at $0.08 and adjusted EBITDA increased 76.7% year-over-year to $2.81 million.
Analysts expect EGAN’s revenue to be $23.57 million for the second quarter ended December 2023. Its EPS is expected to increase 60% year-over-year to $0.08 for the same quarter. Moreover, it has surpassed EPS estimates in each of four trailing quarters.
The stock gained 28.9% over the past three months to close the last trading session at $7.59.
EGAN’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value, Quality, and Sentiment and a B in Stability and Growth. It is ranked first in the 131-stock in the Software - Application industry.
To access EGAN’s additional ratings for Momentum, 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.
INFA shares were trading at $30.41 per share on Monday afternoon, up $0.29 (+0.96%). Year-to-date, INFA has gained 7.12%, versus a 2.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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