From commerce to culture, software is digitizing every aspect of our lives. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have capped returns lately as the industry’s six-month gain of 13.1% has trailed the S&P 500’s 17.4%.
Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. On that note, here are two software stocks we think can generate sustainable market-beating returns and one we’re swiping left on.
One Software Stock to Sell:
PubMatic (PUBM)
Market Cap: $369.9 million
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Are We Out on PUBM?
- 5.2% annual revenue growth over the last three years was slower than its software peers
- Forecasted revenue decline of 8.5% for the upcoming 12 months implies demand will fall off a cliff
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 5 percentage points
At $8.25 per share, PubMatic trades at 1.4x forward price-to-sales. If you’re considering PUBM for your portfolio, see our FREE research report to learn more.
Two Software Stocks to Watch:
Workiva (WK)
Market Cap: $4.24 billion
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Why Are We Positive On WK?
- Billings growth has averaged 23.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- High switching costs and customer loyalty are evident in its net revenue retention rate of 112%
- Software is difficult to replicate at scale and results in a stellar gross margin of 76.8%
Workiva’s stock price of $75.99 implies a valuation ratio of 4.5x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Braze (BRZE)
Market Cap: $3.35 billion
With its technology powering interactions with 6.2 billion monthly active users across the digital landscape, Braze (NASDAQ: BRZE) provides a platform that helps brands build and maintain direct relationships with their customers through personalized, cross-channel messaging and engagement.
Why Does BRZE Stand Out?
- Billings have averaged 24.4% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Customers tend to stick around and use its software more over time as its net revenue retention rate clocks in at 110%
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable three-year growth trajectory
Braze is trading at $30.18 per share, or 4.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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