The Fed’s stringent monetary policy to combat skyrocketing inflation, massive layoffs, and geopolitical concerns negatively impacted the software industry. However, with inflation finally easing, the Fed is expected to go slow with the rate hikes, which should bode well for the sector.
Moreover, overall organizational IT spending is likely to stay robust this year. According to Gartner Inc (IT), the global IT investment would hit $4.5 trillion in 2023, a 2.4% rise from 2022.
Furthermore, the application development software market is estimated to grow at a CAGR of 23.5% until 2031. Investor’s interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 9.9% returns over the past month and 8.9% over the past three months.
Given the backdrop, it could be wise to invest in fundamentally sound software stocks Salesforce, Inc. (CRM), Commvault Systems, Inc. (CVLT), and Progress Software Corporation (PRGS) this year.
Salesforce, Inc. (CRM)
CRM is a customer relationship management technology provider. The company’s Customer 360 platform enables its customers to work together to deliver connected experiences.
On January 12, 2023, CRM introduced a series of innovations to help retailers personalize every shopping moment.
Jujhar Singh, EVP and GM of Salesforce Industries, said, “Salesforce for Retail brings together the power and flexibility of Salesforce’s platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency.”
In terms of forward Price/Book, CRM is currently trading at 2.84x, 31.2% lower than the industry average of 4.13x.
CRM’s gross profit margin of 72.69% is 48.6% higher than the 48.92% industry average, while its levered FCF margin of 30.62% is 349.4% higher than the industry average of 6.81%.
CRM’s total revenues increased 14.2% year-over-year to $7.83 billion for the third quarter that ended October 31, 2022. Moreover, its subscription and support revenue increased 13.4% year-over-year to $7.23 billion. Also, its gross profit increased 14.5% year-over-year to $5.75 billion.
Street expects CRM’s revenue to increase 16.9% year-over-year to $30.97 billion in 2023. Its EPS is expected to increase by 3.1% year-over-year to $4.93 in 2023. It surpassed EPS estimates in all four trailing quarters. CRM’s shares have gained 13.7% over the past month to close the last trading session at $169.96.
CRM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM has an A grade for Growth and a B for Sentiment. Within the Software – Application industry, it is ranked #30 out of 137 stocks. Click here to access the additional POWR Ratings for CRM (Value, Momentum, Stability, and Quality).
Commvault Systems, Inc. (CVLT)
CVLT provides data protection and information management software applications and related services globally. The company sells its products and services to large enterprises, small and medium-sized businesses, and government agencies.
On January 31, 2023, Sanjay Mirchandani, President, and CEO, said, “We remain confident that customers will continue to recognize Commvault’s products and services as a critical component to keep their data safe and simplify their journey to the cloud. As we navigate current macro conditions, we are committed to our philosophy of responsible growth.”
CVLT’s gross profit margin of 83.15% is 70% higher than the 48.92% industry average, while its levered FCF margin of 24.41% is 261.7% higher than the industry average of 6.75%.
CVLT’s total current assets came in at $506.68 million for the period ended December 31, 2022, compared to $484.08 million for the period ended March 31, 2022. Its current liabilities came in at $391.18 million, compared to $394.06 million for the same period.
Analysts expect CVLT’s revenue to increase marginally year-over-year to $778.05 million in 2023. Its EPS is estimated to grow 10% per annum for the next five years. It surpassed EPS estimates in three out of four trailing quarters. Over the past month, the stock has gained 15.1% to close the last trading session at $63.53.
It’s no surprise that CVLT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Growth and Value. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated CVLT for Stability, Momentum, and Sentiment. Get all CVLT ratings here.
Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications. The company offers OpenEdge, Sitefinity, and Corticon.
On February 7, 2023, PRGS announced the completion of the acquisition of MarkLogic, a leader in complex data and semantic metadata management and a Vector Capital portfolio company.
MarkLogic is expected to offer a unified enterprise-grade semantic data platform that enables users to extract value from complex data and drive significant growth for PRGS.
PRGS’ EBIT margin of 21.17% is 272.7% higher than the 5.68% industry average. Its EBITDA margin of 33.58% is 201.5% higher than the 11.14% industry average.
For the fiscal fourth quarter that ended November 30, 2022, PRGS’ revenue came in at $157.13 million, up 12.1% year-over-year. Its income from operations increased 49.5% year-over-year to $30.44 million. Moreover, the company’s non-GAAP net income and EPS came in at $49.24 million and $1.12, up 19.2% and 21.7% year-over-year, respectively.
Its revenue is expected to increase by 9.4% year-over-year to $667.93 million in 2023. Its EPS is expected to grow by 2% per annum for the next five years. Also, it surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 29.6% to close the last trading session at $58.22.
PRGS has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Growth, Stability, and Value. PRGS is ranked first in the same industry. To see the additional POWR Ratings for PRGS (Momentum and Sentiment), click here.
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CRM shares fell $0.76 (-0.45%) in premarket trading Wednesday. Year-to-date, CRM has gained 28.18%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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