Software Stock Watchlist - Should You Buy, Sell, or Hold?

Rapid growth in the software sector is fueled by increasing digitalization, growing cloud adoption, integration of AI and ML capabilities into software products, and rising cyber threats. So, let’s analyze whether you should buy, hold, or sell software stocks The Sage Group (SGPYY), Qualys (QLYS), and Blackbaud (BLKB). Read more to find out...

The software sector is poised to witness significant growth due to high demand for automation of business operations, growing volume of enterprise data, rapid digital transformation, demand for cloud-based solutions, and technological advancements, such as AI and ML. In 2024, global software spending is expected to grow 12.7% year-over-year to $1.03 trillion.

Given these factors, investors could consider buying fundamentally sound software stocks The Sage Group plc (SGPYY), Qualys, Inc. (QLYS), and Blackbaud, Inc. (BLKB) for potential gains.

The software industry is thriving due to the rising popularity of decision support software, enterprise resource planning, customer relationship software, etc. These quality business software applications automate processes and streamline business operations. The global business software and services market is expected to expand at a CAGR of 11.9% to reach $1.15 trillion by 2030.

Besides, SaaS solutions have undergone rapid changes as technologies such as machine learning and AI are integrated to improve operation proficiency and intelligence across businesses. SaaS applications have become an embedded part of enterprise computing globally, as more than half of applications are now SaaS-based.

As per the Fortune Business Insights report, the global Software as a Service (SaaS) market is projected to grow to $1.23 trillion by 2032 at a CAGR of 18.4%.

In today’s interconnected world, strengthening digital defenses is crucial, as evidenced by the surge in cyber threats. The integration of AI technologies into security protocols further improves threat detection and proactive defense measures. The global cybersecurity market size is anticipated to total $314.28 billion by 2029, growing at a CAGR of 11.4% from 2024 to 2029.

Considering these encouraging trends, let’s take a look at the fundamentals of the three best software stocks.

The Sage Group plc (SGPYY)

Based in Newcastle upon Tyne, the United Kingdom, SGPYY provides technology solutions and services for small and medium businesses in the U.S., the United Kingdom, France, and internationally. Its product portfolio includes Sage Intacct, Sage People, Sage 200, Sage X3, Sage Accounting, Sage Payroll, and Sage HR.

On February 28, 2024, SGPYY expanded its construction cloud portfolio to serve customers better. Sage has a history of trust and innovation in cloud and construction technology, serving 48% of ENR Top 400 Contractors and 53% of BD+C Giants Top 115 Contractors.

On February 27, SGPYY signed a strategic collaboration agreement with Amazon Web Services (AWS) to enable AI-powered solutions. This partnership will significantly enhance how SMBs optimize their operations with generative AI and tackle environmental responsibilities, with Sage Earth now available in AWS Marketplace.

Also, on the same day, the company introduced its new generative AI-powered productivity assistant, Sage Copilot, which is set to revolutionize accounting, finance, and people management processes and empower customers to make smarter business decisions. This new launch is expected to extend SGPYY’s market reach and drive sales.

SGPYY’s trailing-12-month gross profit margin of 92.86% is 90.4% higher than the industry average of 48.78%. Likewise, the stock’s trailing-12-month net income margin of 9.66% is 270.7% higher than the industry average of 2.61%.

According to the trading update for the first quarter ended December 2023, SGPYY’s total revenue increased 9.8% year-over-year to £573 million ($712.28 million). Sage Business Cloud revenue was £454 million ($565.14 million), down 18% from the year-ago value, primarily driven by new customer acquisition and growth in cloud connected revenue for existing and new customers.

SGPYY’s underlying total revenue for the fiscal year ended September 30, 2023, increased 12.1% year-over-year to £2.18 billion ($2.76 billion). Its underlying operating profit rose 21% from the previous year to £456 million ($577.10 million). The company’s EBITDA grew 15.9% year-over-year to £553 million ($699.86 million).

Also, the company’s underlying EPS came in at 32.25p, representing an increase of 25.3% from the prior year.

Street expects SGPYY’s revenue for the fiscal year (ending September 2024) to increase 8.4% year-over-year to $2.96 billion. Similarly, the consensus revenue estimate of $3.24 billion for the fiscal year 2025 represents a 9.6% increase year-over-year.

Shares of SGPYY have gained 53.3% over the past year to close the last trading session at $59.91.

SGPYY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SGPYY has an A grade for Stability and a B for Quality and Growth. It is ranked #4 out of 19 stocks in the B-rated Software - SAAS industry.

Click here to access the additional SGPYY ratings (Momentum, Sentiment, and Value).

Qualys, Inc. (QLYS)

QLYS offers a cloud-based platform that delivers information technology (IT), security, and compliance solutions in the United States and internationally. The company provides Qualys Cloud Apps, which include Cybersecurity Asset Management and External Attack Surface Management; Vulnerability Management, Detection and Response.

On February 7, 2024, QLYS unveiled TotalCloud 2.0. This significant upgrade to Qualys' AI-powered cloud-native application protection platform (CNAPP) delivers a single prioritized view of cloud risk and is the first to extend its protection to SaaS applications.

On February 5, QLYS announced its award-winning suite of security solutions, including Qualys Vulnerability Management, Detection and Response (VMDR), and TotalCloud, which are integrated natively with Oracle Cloud Infrastructure (OCI).

Qualys TruRisk vulnerability and cyber risk reduction solutions are available on the Oracle Cloud Marketplace with built-in and one-click orchestration, enhancing the existing OCI Vulnerability Scanning Service-integrated Qualys experience.

QLYS’s trailing-12-month gross profit margin of 80.61% is 65.3% higher than the industry average of 48.78%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of 34.28% and 27.34% are considerably higher than the industry averages of 9.43% and 2.61%, respectively.

During the fourth quarter that ended December 31, 2023, QLYS’ total revenues increased 10.5% year-over-year to $144.57 million. It reported a non-GAAP gross profit of $120.23 million, up 13.7% from the prior year’s quarter. The company’s non-GAAP net income came in at $52.84 million, or $1.43 per share, up 36% and 38.8% year-over-year, respectively.

Additionally, the company’s adjusted EBITDA rose 19.6% from the year-ago value to $65.84 million.

Analysts expect QLYS’s revenue for the first quarter (ended March 2024) to increase 11.7% year-over-year to $146 million. The company’s EPS is expected to grow 19.6% year-over-year to $1.30 for the same period. Moreover, QLYS has surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.

QLYS’s stock has soared 29.7% over the past nine months to close the last trading session at $166.15.

QLYS’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

The stock has an A grade for Quality. QLYS is ranked #8 in the 22-stock B-rated Software - Security industry.

Beyond what is stated above, we’ve also rated QLYS for Sentiment, Value, Growth, Stability, and Momentum. Get all QLYS ratings here.

Blackbaud, Inc. (BLKB)

BLKB provides cloud software solutions to nonprofits, foundations, education institutions, and healthcare organizations internationally. The company offers fundraising and engagement solutions, such as Blackbaud Raiser's Edge NXT, Blackbaud CRM, Blackbaud eTapestry, Blackbaud Luminate Online, Blackbaud TeamRaiser.

BLKB’s trailing-12-month gross profit margin of 54.64% is 12% higher than the industry average of 48.78%. Also, the stock’s trailing-12-month EBIT margin of 10.13% is 112.5% higher than the industry average of 4.77%. Its trailing-12-month EBITDA margin of 16.17% is 71.5% higher than the industry average of 9.43%.

BLKB’s revenue increased 7.4% year-over-year to $295.01 million during the fourth quarter that ended December 31, 2023. Its non-GAAP net income rose 72.9% year-over-year to $62.18 million. The company’s non-GAAP EPS grew 67.6% from the year-ago value to $1.14.

Analysts expect BLKB’s revenue and EPS for the first quarter (ended March 2024) to increase 7.4% and 24.8% year-over-year to $281.16 million and $0.90, respectively. Additionally, the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is remarkable.

Shares of BLKB have gained 10.9% over the past six months to close the last trading session at $76.72.

BLKB’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

BLKB has an A grade for Growth. It is ranked #14 in the B-rated Software - Business industry.

In addition to the POWR Ratings highlighted above, one can access BLKB’s ratings for Value, Momentum, Stability, Sentiment, and Quality here.

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SGPYY shares were unchanged in premarket trading Monday. Year-to-date, SGPYY has gained 0.89%, versus a 8.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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