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 weighed on the returns lately as the industry has pulled back by 25.8% over the past six months. This performance was noticeably worse than the S&P 500’s 1% fall.

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. With that said, here is one software stock poised to generate sustainable market-beating returns and two we’re steering clear of.

Two Software Stocks to Sell:

Dropbox (DBX)

Market Cap: $5.43 billion

Originally named after the founders' tendency to "drop" files into a shared folder, Dropbox (NASDAQ: DBX) provides a content collaboration platform that helps individuals and teams store, organize, share, and work on files from anywhere.

Why Do We Think DBX Will Underperform?

1. Offerings couldn’t generate interest over the last year as its billings have averaged 1.1% declines
2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
3. Operating margin increased by 8.3 percentage points over the last year as it refined its cost structure

At $22.79 per share, Dropbox trades at 2.3x forward price-to-sales. Check out our free in-depth research report to learn more about why DBX doesn’t pass our bar.

ON24 (ONTF)

Market Cap: $347.2 million

Powering over 1,700 companies' virtual marketing efforts since 1998, ON24 (NYSE: ONTF) provides a cloud-based platform that enables businesses to create interactive digital experiences and capture actionable data from customer engagement.

Why Do We Pass on ONTF?

1. Billings have dropped by 5.8% over the last year, suggesting it might have to lower prices to stimulate growth
2. Projected sales for the next 12 months are flat and suggest demand will be subdued
3. Poor expense management has led to operating margin losses

ON24 is trading at $8.10 per share, or 2.5x forward price-to-sales. To fully understand why you should be careful with ONTF, check out our full research report (it’s free).

One Software Stock to Buy:

JFrog (FROG)

Market Cap: $5.61 billion

Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ: FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.

Why Will FROG Outperform?

1. ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
2. User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
3. Robust free cash flow margin of 26.8% gives it many options for capital deployment

JFrog’s stock price of $48.52 implies a valuation ratio of 8.9x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

High-Quality Stocks for All Market Conditions

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.