Last year the tech industry was under pressure due to the challenges posed by high inflation and the Fed’s aggressive interest rate hikes. Although the Fed is likely to raise interest rates twice by the end of the year, it is expected to start cutting interest rates next year, which could be positive news for tech names.
Given the solid long-term growth prospects of the industry, it could be wise to buy fundamentally strong software stocks Commvault Systems, Inc. (CVLT), IBEX Limited (IBEX), and eGain Corporation (EGAN).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the software industry is well-positioned for growth.
Software has become integral to our lives, from smartphones and laptops to cars and enterprises. The global software market is expected to grow at a CAGR of 11.5% to reach $1.39 trillion by 2030.
With enterprises investing in digital transformation and cloud computing, the demand for cloud-based software services such as Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) is rising. Moreover, the software industry is well-positioned to gain from the advancements in newer technologies such as augmented reality (AR), virtual reality (VR), Internet of Things (IoT), etc.
Gartner expects software spending to grow 12.3% year-over-year to $891.37 billion this year. It expects the software segment to perform well as enterprises will likely capture competitive advantages through increased productivity, automation, and other software-driven transformation initiatives.
Considering these factors, it could be wise to buy the featured stocks. Let’s take a closer look at their fundamentals.
Commvault Systems, Inc. (CVLT)
CVLT provides a data protection platform that helps customers to secure, defend, and recover their data. The company offers Commvault Backup and Recovery, a backup and recovery solution; Commvault Disaster Recovery, a replication and disaster recovery solution; Commvault Complete Data Protection, a data protection solution; and Metallic Data Protection as-a-service, which delivers enterprise-grade data protection.
On June 7, 2023, CVLT introduced new security capabilities across its portfolio to help businesses protect their data against advanced cyber threats. The company has expanded its security ecosystem by integrating with Microsoft and CyberArk and collaborating with them to enhance security platforms.
In terms of the trailing-12-month EBIT margin, CVLT’s 6.76% is 56.9% higher than the 4.31% industry average. Likewise, its 82.74% trailing-12-month gross profit margin is 68.1% higher than the 49.24% industry average. Furthermore, the stock’s 0.98x trailing-12-month asset turnover ratio is 61.6% higher than the 0.61x industry average.
CVLT’s revenues for the fiscal year ended March 31, 2023, rose 1.9% year-over-year to $784.59 million. Its non-GAAP income from operations came in at $159.90 million. The company’s non-GAAP earnings per share came in at $2.56, representing an increase of 2% year-over-year. Additionally, its non-GAAP net income came in at $117.11 million.
Street expects CVLT’s EPS for the quarter ending June 30, 2023, to increase 0.5% year-over-year to $0.64. Its revenue for the quarter ending September 30, 2023, is expected to increase 3.7% year-over-year to $195.02 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 36.8% to close the last trading session at $71.68.
CVLT’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 135 stocks in the Software - Application industry. It has an A grade for Quality and a B for Growth, Value, and Sentiment. Click here to see CVLT’s rating for Momentum and Stability.
IBEX Limited (IBEX)
IBEX provides end-to-end technology-enabled customer lifecycle experience solutions. The company’s products and services portfolio includes offers customer service, technical support, revenue generation, and other value-added outsourced back-office services. As well as customer acquisition solution that comprises digital marketing, e-commerce technology, and platform solutions.
In terms of the trailing-12-month gross profit margin, IBEX’s 30.74% is 3% higher than the 29.85% industry average. Likewise, its 8.60% levered FCF margin is 64.9% higher than the 5.21% industry average. Additionally, the stock’s 1.79x trailing-12-month asset turnover ratio is 122.9% higher than the industry average of 0.80x.
IBEX’s total revenues for the third quarter ended March 31, 2023, increased 1.9% year-over-year to $131.60 million. Its income from operations rose 161.3% year-over-year to $15.38 million. The company’s net cash inflow from operating activities increased 43.2% over the prior-year quarter to $17.18 million.
Its adjusted EBITDA rose 29.6% year-over-year to $24.36 million. Also, its adjusted net income increased 5.6% year-over-year to $11.30 million. Additionally, its adjusted earnings per share came in at $0.59, representing an increase of 3.5% year-over-year.
For the quarter ending June 30, 2023, IBEX’s EPS and revenue are expected to increase 13.9% and 1.7% year-over-year to $0.49 and $125.86 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the nine months, the stock has gained 33.6% to close the last trading session at $21.14.
IBEX’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Value, and Quality. It is ranked #3 in the same industry. To see IBEX’s ratings for Momentum and Stability, click here.
eGain Corporation (EGAN)
EGAN specializes in developing, licensing, implementing, and supporting customer service infrastructure software solutions. Their main offering is the Knowledge Hub, a unified solution that automates, augments, and orchestrates customer engagement. In addition, EGAN provides subscription services for cloud-based access to their software and offers professional services like consulting, implementation, training, and managed services.
In terms of the trailing-12-month gross profit margin, EGAN’s 71.89% is 46% higher than the 49.24% industry average. Likewise, its 0.83x asset turnover ratio is 36.5% higher than the 0.61x industry average. Additionally, the stock’s 14.05% trailing-12-month levered FCF margin is 100.4% higher than the industry average of 7.01%.
For the fiscal third quarter ended March 31, 2023, EGAN’s total revenue came in at $23.01 million. Its non-GAAP gross profit came in at $15.79 million. Its non-GAAP net income came in at $1.08 million. In addition, its non-GAAP EPS came in at $0.03.
For the quarter ending June 30, 2023, EGAN’s EPS and revenue are expected to increase 83.3% and 0.9% year-over-year to $0.06 and $23.71 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 8.3% to close the last trading session at $7.45.
EGAN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality and a B for Value and Stability. Within the Software – Application industry, it is ranked first. To see EGAN’s rating for Growth & Momentum, click here.
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CVLT shares were trading at $70.91 per share on Wednesday afternoon, down $0.77 (-1.07%). Year-to-date, CVLT has gained 12.84%, versus a 14.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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