The Fed’s aggressive monetary policy stance to control decade-high inflation and intensifying geopolitical uncertainties have caused the major benchmark equity indexes to slump of late. While most sectors witnessed a correction, technology has been the hardest hit. Therefore, many quality software stocks are currently trading at prices lower than their intrinsic values.
The software industry is nonetheless well-positioned to grow given the robust demand for software solutions owing to digitization, hybrid working trends, and the adoption of advanced technologies across various sectors. According to Gartner, software spending is expected to grow 9.8% to $674.9 billion this year.
Given the industry's promising growth prospects, we think high-quality software stocks Progress Software Corporation (PRGS) and Amdocs Limited (DOX), which look undervalued at their current price levels, could be great bets now.
Click here to check out our Software Industry Report for 2022
Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications. The Bedford, Mass., company offers OpenEdge, a development software, which builds multi-language applications for secure deployment across various platforms and devices, as well as cloud, developer tools that comprise components for user interface development for Web, mobile, desktop, chat, and AR/VR apps, as well as automated application testing and reporting tools.
In March, PRGS announced the availability of 35+ new Progress DataDirect connectors to assist organizations in overcoming the challenge of accessing data and business intelligence from different applications. In addition to the industry-leading portfolio of pre-built connectors, the new series provides fast and direct access to various popular data sources, including Foursquare, Google Calendar, Twitter, WordPress, YouTube, Zoom, and more.
Also, in March, PRGS announced the latest release of Progress WhatsUp Gold, its award-winning IT infrastructure monitoring software. With the release of WhatsUp Gold, which came less than six months after PRGS acquired Kemp, PRGS introduced integration with the comprehensive network traffic performance monitoring and diagnostics capabilities of Progress Flowmon and the monitoring of Progress LoadMaster. PRGS now provides organizations with a comprehensive and easy-to-understand view of their networks' performance from a single pane of glass.
PRGS' 11.24x forward P/E non-GAAP is 36.7% lower than the 17.75x industry average. And its 10.41x forward EV/EBIT is also 33.4% lower than the 15.63x industry average.
During the first quarter, ending Feb. 28, 2022, PRGS' non-GAAP revenue increased 11.9% year-over-year to $147.51 million. Its non-GAAP income from operations grew 3.7% from its year-ago value to $58.73 million. Its non-GAAP net income amounted to $43.56 million, up 2.5% from its prior-year quarter. The company's non-GAAP EPS rose 2.1% from its previous period to $0.97.
Analysts expect PRGS' revenue to increase 13.4% year-over-year to $146.45 million for the second quarter, ending May 31, 2022. The $0.95 consensus EPS estimate for the second quarter, ending May 31, 2022, represents a 15.9% improvement year-over-year. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Closing its last trading session at $45.65, the stock has gained 3.4 % in price over the past year.
PRGS' POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
PRGS has also rated an A grade for Quality and a B for Value and Growth. Within the Software - Application industry, it is ranked #2 of 157 stocks. To see additional POWR Ratings for Momentum, Stability, and Sentiment for PRGS, click here.
Amdocs Limited (DOX)
Headquartered in Chesterfield, Miss., DOX and its subsidiaries provide software and services worldwide. The company designs, develops, operates, implements, supports, and markets open and modular cloud portfolios.
DOX recently opened its Americas 5G Experience Lab in Dallas, Texas. The lab will facilitate creative organizations in serving connected society to come together and create innovative services leveraging the power of 5G networks. The 5G Experience Lab is a sandbox where industry-leading service providers, enterprises, Amdocs, and its 5G edge applications expand the limits of connected experiences, opening new opportunities across industries.
Last month, DOX announced that Vodafone had selected it to further harmonize and modernize its inventory portfolio in Germany, Romania, the Czech Republic, and Albania for its mobile, fixed, and cable offerings. DOX has signed an agreement with Vodafone Albania for the first time. Advanced inventory capabilities will help Vodafone procure a powerful data foundation since it continues to automate its network and service operations for a network crossing various countries and new network technologies, such as 5G.
DOX's 15.03x forward P/E non-GAAP GAAP is 15.3% lower than the 17.75x industry average. And its 2.16x forward EV/Sales is also 23.1% lower than the 2.81x industry average.
In its first fiscal quarter, ending Dec. 31, 2021, DOX's total revenue increased 16.8% year-over-year to $1.10 billion. Its non-GAAP operating income grew 3% from its year-ago value to $193.61 million, while the non-GAAP net income amounted to $150.14. The company's non-GAAP EPS rose 3.4% from its prior-year quarter to $1.20.
The consensus EPS estimate of $1.24 for the second quarter, ending March 31, 2022, represents 9.7% year-over-year growth. Analysts expect its revenue to increase 7.5% year-over-year to $1.13 billion for the second-quarter ending March 31, 2022.
The stock has gained 4.8% in price year-to-date to close its last trading session at $78.43.
It is no surprise that DOX has an overall A rating, which equates to Strong Buy in our POWR Ratings system. DOX has a B grade for Value, Stability, and Quality.
Within the Software – Business industry, DOX is ranked #2 of 58 stocks. Click here to see the additional POWR Ratings for DOX (Growth, Sentiment, and Momentum).
Click here to check out our Software Industry Report for 2022
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PRGS shares were trading at $47.75 per share on Tuesday afternoon, up $2.10 (+4.60%). Year-to-date, PRGS has declined -0.68%, versus a -15.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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