Software is rapidly reducing operating expenses for businesses. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as the high prices exposed them to big drawdowns, and unfortunately, the industry has tumbled by 7.1% over the last six months. This drawdown is a stark contrast from the S&P 500’s 11% gain.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. Taking that into account, here are two software stocks we think can generate sustainable market-beating returns and one we’re swiping left on.
One Software Stock to Sell:
Fastly (FSLY)
Market Cap: $3.26 billion
Taking its name from the core advantage it delivers to customers, Fastly (NASDAQ: FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.
Why Does FSLY Worry Us?
- Below-average net revenue retention rate of 107% suggests it has some trouble expanding within existing accounts
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 59.4%, one of the worst among software companies
- Suboptimal cost structure is highlighted by its history of operating margin losses
Fastly is trading at $19.85 per share, or 4.3x forward price-to-sales. Check out our free in-depth research report to learn more about why FSLY doesn’t pass our bar.
Two Software Stocks to Watch:
The Trade Desk (TTD)
Market Cap: $9.67 billion
Built as an alternative to "walled garden" advertising ecosystems, The Trade Desk (NASDAQ: TTD) provides a cloud-based platform that helps advertisers and agencies plan, manage, and optimize digital advertising campaigns across multiple channels and devices.
Why Are We Fans of TTD?
- Impressive 20.2% annual revenue growth over the last two years indicates it’s winning market share
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Highly efficient business model is illustrated by its impressive 20.3% operating margin, and its rise over the last year was fueled by some leverage on its fixed costs
At $20.40 per share, The Trade Desk trades at 3.1x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Zeta Global (ZETA)
Market Cap: $5.8 billion
Powered by an AI engine that processes over one trillion consumer signals monthly, Zeta Global (NYSE: ZETA) operates a data-driven cloud platform that helps companies target, connect, and engage with consumers through personalized marketing across channels like email, social media, and video.
Why Are We Positive on ZETA?
- Average billings growth of 36.6% over the last year enhances its liquidity and shows there is steady demand for its products
- Market share will likely rise over the next 12 months as its expected revenue growth of 29.1% is robust
Zeta Global’s stock price of $22.11 implies a valuation ratio of 3.2x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
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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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
