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Top Software Stock May Watchlists

Given the software industry’s remarkable growth trajectory, one might want to add fundamentally top software stocks GoDaddy (GDDY), SS&C Technologies (SSNC), The Sage Group (SGPYY), Yalla Group (YALA), Vimeo (VMEO) to their watchlist this month. So, let’s delve deeper into the fundamentals of these stocks to gauge their potential…

Thanks to the growing necessity for automating business processes, the exponential increase in enterprise data volumes, rapid digital transformation, soaring demand for cloud-based solutions, and advancements in technologies such as Artificial Intelligence (AI) and Machine Learning (ML), the software industry remains a bright spot, ripe with innovation.

In the United States alone, the software industry is expected to surge to a staggering $338.20 billion in annual revenue. Given the industry’s growth prospects, investors could consider buying top software stocks GoDaddy Inc. (GDDY), SS&C Technologies Holdings, Inc. (SSNC), The Sage Group plc (SGPYY), Yalla Group Limited (YALA), Vimeo, Inc. (VMEO) with a focus on high profitability and lower valuation relative to their industry peers.

The software sector's trajectory is remarkable. By 2032, the global market is projected to reach $1.59 trillion by 2032 (growing at a CAGR of 11.9%), fueled by factors such as the increased volume of enterprise data, rising automation of business processes, and growing digitization. As businesses digitize, cybersecurity concerns are also on the rise, further propelling market expansion.

Moreover, Software as a Service (SaaS) offerings have undergone rapid evolution, incorporating cutting-edge technologies like machine learning and artificial intelligence to enhance operational efficiency and intelligence across businesses. SaaS applications have become integral components of enterprise computing worldwide, with a majority of applications now being delivered through this model.

Looking ahead, the global Software as a Service market is expected to see substantial growth, climbing from $317.55 billion in 2024 to $1.23 trillion by 2032, exhibiting a robust CAGR of 18.4%.

On top of it, investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 16.6% returns over the past six months.

Considering these factors, the featured stocks present potentially promising investment opportunities for this month. Let’s take a closer look at them.

GoDaddy Inc. (GDDY)

GDDY designs and develops cloud-based products and operates through two segments: Applications and Commerce and Core Platform. It offers applications products, including Websites + Marketing, a mobile-optimized online tool that enables customers to build websites and e-commerce-enabled online stores.

In terms of forward non-GAAP P/E, GDDY is trading at 21.65x, 6.6% lower than the industry average of 23.19x. Its forward non-GAAP PEG multiple of 0.83 is 54.9% lower than the industry average of 1.85x. In addition, REX’s forward Price/Cash Flow ratio of 14.67 is 33.7% lower than the industry average of 22.14.

For the fourth quarter that ended December 31, 2023, GDDY’s total revenue increased 5.8% year-over-year to $1.10 billion. Its non-GAAP normalized EBITDA grew 21.9% from the year-ago value to $324.20 million.

The company’s attributable net income improved significantly from the prior-year quarter to $1.13 billion and $7.85 per share, respectively, for the same period. Also, its non-GAAP unlevered free cash flow increased 45.5% from the year-ago value to $346.60 million.

As per the full-year 2024 guidance, GDDY expects to deliver total revenue in the range of $4.48 billion to $4.56 billion, representing a year-over-year growth of 6% (at the midpoint). The company’s normalized EBITDA margin is expected to be 29%. It further anticipates generating a free cash flow of at least $1.2 billion, versus $1.1 billion in 2023.

The consensus EPS estimate of $0.96 for the first quarter (ended March 31, 2024) represents a significant year-over-year improvement. The consensus revenue estimate of $1.10 billion for the to-be-reported quarter represents a 5.9% increase from the same period last year.

GDDY’s trailing-12-month gross profit margin of 63.01% is 29.6% higher than the 48.64% industry average. Likewise, its trailing-12-month net income margin and ROTA of 32.32% and 18.17% compares to the industry averages of 2.54% and 1.24%, respectively.

The stock has gained 66.5% over the past six months to close the last trading session at $122.29.

GDDY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Growth, Sentiment, and Quality. Among the 43 stocks in the Software - Business industry, it is ranked #6. Click here to see the other ratings of GDDY for Value, Momentum, and Stability.

SS&C Technologies Holdings, Inc. (SSNC)

SSNC, a leading hedge fund and private equity administrator and mutual fund transfer agency, owns and manages a comprehensive technology suite across various sectors, including securities accounting, front-to-back-office operations, risk and performance analytics, regulatory reporting, and healthcare information processes.

In terms of forward non-GAAP P/E, SSNC is trading at 12.13x, 33.8% lower than the industry average of 18.33x. Likewise, the stock’s forward EV/EBITDA and EV/EBIT multiples of 9.66 and 9.96 are 13.9% and 35.9% lower than the industry averages of 11.22x and 15.53x, respectively.

SSNC’s total revenues increased 5.3% year-over-year to $1.43 billion in the first quarter ended March 31, 2024. Its gross profit rose 11% from the prior-year quarter to $707.20 million. Also, its adjusted operating income amounted to $541.10 million, up 9.6% year-over-year.

The company’s adjusted attributable net income grew 10.8% from the year-ago value to $323.60 million, while its non-GAAP earnings per share increased 12.3% year-over-year to $1.28. Further, its cash, cash equivalents, and restricted cash at the end of the period stood at $2.29 billion, representing a significant improvement from the same period last year.

For the full year 2024, SSNC’s adjusted revenue is projected to fall between $5.69 billion and $5.85 billion. It also expects its earnings per share (adjusted) to lie in the range of $4.93-$5.17.

Street expects SSNC’s EPS for the current quarter (ending June 2024) to increase 10.7% year-over-year to $1.20. Its revenue is expected to reach $1.43 billion, registering a year-over-year growth of 5%. Moreover, it topped the revenue estimates in three of the trailing four quarters.

The stock’s trailing-12-month gross profit and net income margins of 49.14% and 11.46% are 61.1% and 96.2% higher than the industry averages of 30.50% and 5.84%, respectively. Also, its levered FCF margin of 17.05% compares to the industry average of 6.44%.

Shares of SSNC have gained 24.5% over the past six months to close the last trading session at $61.22.

It’s no surprise that SSNC has an overall rating of A, which equates to Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Momentum, Stability, and Sentiment. Out of 134 stocks in the Software - Application industry, it is ranked #8.

In addition to the POWR Ratings we’ve stated above, we also have SSNC’s ratings for Quality. Get all SSNC ratings here.

The Sage Group plc (SGPYY)

Based in Newcastle upon Tyne, the United Kingdom, SGPYY provides technology solutions and services for Small and Mid-Sized Businesses (SMBs) internationally. It offers services like cloud-native solutions, such as Sage Intacct, a cloud accounting software products and financial management software; and Sage 200, a finance and business management solution, etc.

For the fiscal year that ended September 30, 2023, SGPYY’s underlying total revenue increased 10.2% year-over-year to £2.18 billion ($2.72 billion), while gross profit grew 12% from the year-ago value to £2.03 billion ($2.54 billion).

The company’s underlying profit for the period and EPS increased by 25.1% and 24.8% from the prior-year period to £329 million ($411.01 million) and 31.75p, respectively. Also, its underlying operating profit increased 20.9% from the year-ago value to £456 million ($569.67 million).

SGPYY is expected to witness revenue growth of 7.7% and 9.6% year-over-year, reaching $2.94 billion and $3.22 billion in the fiscal years 2024 and 2025, respectively.

The stock’s trailing-12-month gross profit margin of 92.86% is 90.9% higher than the 48.64% industry average. Likewise, its trailing-12-month net income margin, ROCE, and ROTA of 9.66%, 15.05%, and 5.36% are substantially higher than the industry averages of 2.54%, 2.94%, and 1.24%, respectively.

SGPYY’s shares have gained 41.5% over the past year to close the last trading session at $58.62.

SGPYY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.

It has an A grade for Stability and a B for Growth and Quality. In the 18-stock A-rated Software - SAAS industry, it is ranked #4. To see additional POWR Ratings of SGPYY for Value, Momentum, and Sentiment, click here.

Yalla Group Limited (YALA)

Based in Dubai, the United Arab Emirates, YALA runs a social networking and entertainment platform in the Middle East and North Africa, featuring voice-centric group chat on Yalla and casual gaming on Yalla Ludo. The platform offers group chatting, gaming services, virtual item sales, and upgrade options.

In terms of forward non-GAAP P/E, YALA is trading at 6.91x, 59.4% lower than the industry average of 17.04x. Likewise, the stock’s forward EV/Sales multiple of 0.63 is 65.3% lower than the industry average of 1.81x. Also, its forward Price/Book of 1.23x is 39.6% lower than the industry average of 2.03x.

During the fourth quarter, which ended December 31, 2023, YALA’s revenues grew 7.7% year-over-year to $80.92 million. The company generated non-GAAP operating income and net income of $27.07 million and $33.44 million, up 34.1% and 53.8% from the previous-year quarter, respectively. Moreover, its non-GAAP EPS rose 58.3% from the prior-year quarter to $0.19.

In addition, the management projects its revenues for the first quarter of 2024 to lie between $72 million and $79 million.

Analysts expect YALA’s revenue to increase 6.2% year-over-year to $78.06 million for the fiscal first quarter (ended March 2024). It is expected to reach $331.95 million in the current year, reflecting a 4.1% increase from the same period last year.  Also, the company surpassed the revenue estimates in each of the four trailing quarters.

YALA’s trailing-12-month gross profit margin of 64.08% is 30.3% higher than the 49.17% industry average. In addition, its trailing-12-month net income margin and ROTA of 36.80% and 18.36% are significantly higher than the industry averages of 2.62% and 1.18%, respectively.

Over the past year, the stock has gained 32.2%, to close the last trading session at $4.76.

YALA’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

YALA has a B grade for Growth, Value, Stability, Sentiment, and Quality. It ranks #3 of 134 stocks in the Software - Application industry. Click here to see YALA’s rating for Momentum.

Vimeo, Inc. (VMEO)

VMEO provides online video software and services globally. The company offers video tools through a software-as-a-service model, which enables the users to create, collaborate, and communicate with video on a single platform.

During the fourth quarter that ended on December 31, 2023, VMEO’s revenue amounted to $105.54 million, while its non-GAAP gross profit increased marginally year-over-year to $82.50 million. The company’s net earnings came in at $8.39 million or $0.05 per share, versus a net loss of $5.12 million or $0.03 per share in 2022.

Moreover, its adjusted EBITDA amounted to $13.30 million, up 104.6% year-over-year. Also, its free cash flow improved significantly from the prior-year period to $10 million.

For the first quarter of 2024, the company expects its revenue to be around $100 million, while its adjusted EBITDA is projected to lie between $7 million and $9 million.

Street expects VMEO’s revenue to increase by 4.1% year-over-year to $408.36 million in the fiscal year 2025. Its EPS is expected to be $0.03 in the next year, reflecting an impressive increase of 131.6% year-over-year. Moreover, the company topped the EPS and revenue estimates in each of the trailing four quarters.

Additionally, in terms of forward EV/Sales, VMEO is trading at 0.80x, 55.5% lower than the industry average of 1.81x.

VMEO’s trailing-12-month gross profit margin of 78.12% is 58.9% higher than the 49.17% industry average. Likewise, its trailing-12-month net income margin and ROCE of 5.28% and 5.86%, are 101.8% and 98.9% higher than the industry averages of 2.62% and 2.94%, respectively.

The stock has gained 18.2% over the past six months to close the last trading session at $3.63.

VMEO’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

It also has an A grade for Value and Quality and a B for Sentiment. The stock is ranked #2 of 18 stocks in the Software - SAAS industry. To see the other ratings of VMEO for Growth, Momentum, and Stability, click here.

What To Do Next?

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GDDY shares were trading at $123.51 per share on Thursday afternoon, up $1.22 (+1.00%). Year-to-date, GDDY has gained 16.34%, versus a 6.38% rise in the benchmark S&P 500 index during the same period.



About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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