Although Software-as-a-Service (SaaS) companies delivered stellar performance last year, they have witnessed a bit of a sell-off over the past few months. This is primarily because many investors have rotated away from pricey tech stocks to undervalued shares in sectors that are expected to rebound with an economic recovery.

Nevertheless, a widespread transition by organizations from on-premises systems to cloud-based systems—a transition that is highly dependent on SaaS solutions—is in full swing and there’s no going back. According to a report by ResearchAndMarkets.com, the global cloud professional services market size is expected to grow at a CAGR of 17.2% over the next five years.

Companies such as Adobe, Inc. (ADBE - Get Rating) and Salesforce.com, Inc. (CRM - Get Rating) are expected to generate big  returns in the near term as the demand for their services increases with more businesses adopting hybrid and remote working arrangements as long-term structures. So, we think it is wise to bet on these stocks now.

Click here to check out our Software Industry Report for 2021

Adobe, Inc. (ADBE - Get Rating)

One of the largest and most diversified software companies in the world, ADBE enables the design and delivery  of exceptional digital experiences. It operates through three segments—Digital Media, Digital Experience and Publishing. The company offers its products and services directly to enterprise customers through its sales force and local field offices, through its website, and through a network of distributors, software vendors and developers, retailers, and OEMs. 

ADBE’s net sales increased 26.3% year-over-year to $3.91 billion for its  fiscal year 2021 first quarter, ended March 5, 2021. Its digital media segment revenue increased 32% year-over-year, while its document cloud revenue increased 37% year-over-year. Its gross profit came in at $3.46 billion, which represents an increase of 31% year-over-year. The company’s net income has increased by 32% year-over-year to $1.26 billion. Also, its non-GAAP EPS increased by 38.3% year-over-year to $3.14.

For the quarter ending May 31, 2021, analysts expect ADBE’s revenue and EPS to increase 17.9% and 14.7%, respectively, year-over-year. Also, it surpassed  consensus EPS estimates in each of the trailing four quarters.

ADBE announced on March 11, 2021 that it will  partner with government agencies in all 50 states to power their digital modernization through Adobe Experience Cloud and Adobe Document Cloud. In December, the company completed the acquisition of Workfront, which is expected to bring efficiency, collaboration and productivity gains to its marketing teams. The stock has gained 57.3% over the past year to close yesterday’s trading session at $523.25.

It’s no surprise that ADBE has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Quality, and a B grade for Sentiment. Click here to see ADBE’s rating for Growth, Stability, Value, and Momentum.

ADBE is ranked #22 of 119 stocks in the Software-Application industry.

Salesforce.com, Inc. (CRM - Get Rating)

CRM is the number #1 customer relationship management company, with  more than 150,000 companies as its customers. It is focused on cloud, mobile, social, Internet of Things (IoT) and artificial intelligence (AI) technologies. Its cloud service offerings include sales cloud, service cloud, marketing cloud, commerce cloud, community cloud, analytics cloud, salesforce quip and salesforce platform.

The company’s net sales for its  fiscal year 2021 fourth quarter (ended January 31, 2021) came in at $5.82 billion, which represents a 19.9% year-over-year increase. Its gross profit increased 19.5% year-over-year to $4.34 billion. The company’s net income was $267 million, which represents a 207.6% year-over-year rise. Also, it’s non-GAAP EPS came in at $1.04, up 57.6% year-over-year.

Analysts expect CRM’s EPS and revenue to increase 25.7% and 21.4%, respectively,  year-over-year, for the quarter ending April 30, 2021. The stock also surpassed the Street’s EPS estimates in each of the trailing four quarters.

CRM’s MuleSoft announced last month that  TAB Bank will use MuleSoft to build its open banking strategy and grow an ecosystem of partners. The company also announced in March that more than 150 international, federal, state and local government agencies, and healthcare organizations, are using its technology for vaccine management and COVID-19 tracking. The stock has gained 49.7% over the past year and closed yesterday’s trading session at $233.

CRM’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Sentiment, Growth, and Quality. Click here to see the additional POWR Ratings for CRM (Stability, Value, and Momentum).

CRM is ranked #13 of 61 stocks in the Software-Business industry.

Click here to check out our Software Industry Report for 2021

ADBE shares were trading at $522.82 per share on Friday afternoon, down $0.43 (-0.08%). Year-to-date, ADBE has gained 4.54%, versus a 11.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

More Resources for the Stocks in this Article