Despite high inflation, enterprises are still ramping up spending on cutting-edge technology like AI and cloud computing, which should boost the software industry. Therefore, fundamentally strong software stocks Salesforce, Inc. (CRM), Xperi Inc. (XPER), and Rimini Street, Inc. (RMNI) might be worth buying.
However, considering potential rate hikes on the horizon, software stock Robinhood Markets, Inc. (HOOD) could best be avoided considering its fundamental weakness.
Despite the high inflation, enterprises continue to increase spending on technologies like cloud computing, digital transformation, big data analytics, and AI. According to the latest forecast by Gartner, Inc. (IT), worldwide IT spending is projected to increase 2.4% year-over-year to $4.50 trillion this year.
Moreover, revenue in the software market is projected to reach $650.70 billion in 2023, with most revenue expected to be generated in the United States. Furthermore, revenue is expected to show a CAGR of 5.7%, resulting in a market volume of $812.90 billion by 2027.
Therefore, fundamentally strong software stocks CRM, XPER, and RMNI could be solid additions to your portfolio this month.
However, sticky inflation and a resilient labor market might prompt more rate hikes ahead, which could impact the software industry. Moreover, geopolitical instability could compound the challenges like supply chain delays faced by the software industry. Hence, weak software stock HOOD might be best avoided now.
Stocks to Buy:
Salesforce, Inc. (CRM)
CRM is a cloud-based software company that provides customer relationship management technology that brings companies and customers together worldwide.
On March 7, CRM launched Einstein GPT, the world’s first generative AI CRM technology, which delivers AI-created content at a hyper-scale across every sale, service, marketing, commerce, and IT interaction. With Einstein GPT, CRM aims to transform every customer's experience with generative AI.
On January 12, 2023, CRM and Walmart Commerce Technologies announced their partnership to provide retailers with technologies and services that power frictionless local pickup and delivery for shoppers everywhere.
CRM’s Executive VP of Alliances & Channels, Tyler Prince, said, “Salesforce is thrilled to partner with Walmart as it transforms its business and further expands into the digital technology market.”
CRM’s trailing-12-month gross profit margin of 73.34% is 46.2% higher than the 50.2% industry average. Its trailing-12-month EBITDA margin of 17.34% is 75.8% higher than the 9.87% industry average.
CRM’s total revenues increased 14.4% year-over-year to $8.38 billion during the fourth quarter that ended January 31, 2023. Its gross profit rose 18.3% year-over-year to $6.28 billion.
Also, non-GAAP net income increased 96.4% year-over-year to $1.66 billion, while its non-GAAP net income per share rose 100% year-over-year to $1.68.
Analysts expect CRM’s revenue for the fiscal fourth quarter (ending April 2023) to come in at $8.17 billion, indicating a 10.2% year-over-year growth. The company’s EPS is expected to increase 64.5% year-over-year to $1.61 for the same quarter.
Additionally, CRM topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 44.1% over the past three months to close the last trading session at $184.85. Moreover, it has gained 11.9% over the past month.
CRM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CRM also has an A grade for Growth and Sentiment and a B for Quality. It is ranked #21 out of 133 stocks in the Software - Application industry.
To access additional ratings for CRM’s Stability, Value, and Momentum, click here.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers Pay-TV solutions, including UX solutions that allow service providers to customize elements of the interactive program guide for their customers and upgrade the programming features and services.
On January 10, XPER’s subsidiary TiVo, and Amlogic, a leading fabless semiconductor company, announced they had pre-integrated TiVo OS on Amlogic T962D4 and T950D4 chipsets for the U.S. and European markets.
Through this, the company aims to provide low-cost products for manufacturers and a quality streaming experience to customers, which should boost its topline.
XPER’s trailing-12-month gross profit margin of 75.52% is 50.5% higher than the 50.17% industry average. Its trailing-12-month levered FCF margin of 7.97% is 31.1% higher than the 6.08% industry average.
XPER’s revenues increased 8.6% year-over-year to $135.53 million during the fourth quarter that ended December 31. Non-GAAP net income attributable to the company came in at $3.71 million, while its non-GAAP earnings per share attributable to the company came in at $0.08.
Street expects XPER’s revenue for the fiscal year 2023 to come in at 529.93 million, indicating a 5.5% year-over-year growth.
The stock has gained 24.3% year-to-date to close the last trading session at $10.70.
It is no surprise that XPER has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
XPER is graded a B in Growth, Sentiment, and Quality. It is ranked #3 in the same industry.
In addition to the POWR Ratings stated above, XPER’s rating for Stability, Momentum, and Value can be seen here.
Rimini Street, Inc. (RMNI)
RMNI provides enterprise software products, services, and support for various industries. The company offers application management services for Oracle and SAP enterprise software products.
On March 1, RMNI announced the launch of Rimini Watch, a new suite of proactive observability solutions that includes monitoring, health check, and change management capabilities to reduce downtime, improve performance, and ensure business continuity for Oracle and SAP applications and databases.
Rimini Watch eliminates the time, resource, and cost challenges usually associated with continuous monitoring of critical Oracle and SAP operating processes and managing changes that can impact application and database performance and business continuity.
RMNI’s trailing-12-month gross profit margin of 62.80% is 25.2% higher than the 50.17% industry average. Its trailing-12-month EBITDA margin of 10.10% is 2.4% higher than the 9.87% industry average.
RMNI's revenue rose 9.4% year-over-year to $108.62 million in the fiscal fourth quarter that ended December 31, 2022. The company’s gross profit rose 8.4% year-over-year to $70.06 million in the same quarter. Also, its non-GAAP net income came in at $15.33 million.
RMNI’s revenue for the fiscal first quarter ending March 2023 is expected to come in at 102.34 million, indicating a 4.5% year-over-year growth. The company’s EPS is expected to come in at $0.08 for the same quarter. Additionally, RMNI topped consensus revenue estimates in each of the trailing four quarters.
The stock has gained 9.8% over the past three months to close the last trading session at $4.02.
RMNI’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.
RMNI has a B grade for Growth, Value, and Quality. It is ranked #6 in the same industry.
Click here to see the additional POWR Ratings for RMNI (Stability, Sentiment, and Momentum).
Stock to Sell:
Robinhood Markets, Inc. (HOOD)
HOOD operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies.
Its trailing-12-month Asset Turnover Ratio of 0.06x is 68.6% lower than the 0.20x industry average.
HOOD’s transaction-based revenue declined 29.5% year-over-year to $186 million for the fiscal fourth quarter that ended December 31, 2022. Its other revenue declined 25% year-over-year to $27 million. The company’s net loss came in at $166 million, while its net loss per share attributable to common stockholders came in at $ 0.19.
Street expects HOOD’s EPS to be negative $0.37 for the current quarter (ending March 2023). Its revenue is expected to come in at 423.36 million for the same quarter. Additionally, HOOD failed to surpass revenue estimates in each of the trailing four quarters.
The stock has declined 31.4% over the past year to close its last trading session at $9.19.
HOOD’ POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
HOOD also has a D grade for Sentiment, Value, Stability, and Quality. It is ranked #124 in the same industry.
Beyond the POWR Ratings we’ve stated above, HOOD’s ratings for Growth and Momentum can be seen here.
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CRM shares were trading at $184.77 per share on Monday afternoon, down $0.08 (-0.04%). Year-to-date, CRM has gained 39.35%, versus a 2.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.3 Software Stocks to Buy Before the End of March and 1 to Sell appeared first on StockNews.com