Despite macroeconomic uncertainty, the software industry’s prospects look bright, with higher spending and increased demand for digital transformation. Also, the industry’s ability to innovate and adapt to shifting consumer demands puts it well for future growth.
The software market in U.S. is expected to reach $338.20 billion in revenue in 2023. Also, the revenue is predicted to grow at a 4.2% CAGR until 2028, resulting in a market volume of $414.70 billion.
Moreover, according to Gartner, worldwide software spending is projected to grow 13.7% in 2023. In addition, rapid digital transformation worldwide is boosting the application development software market growth. The market for application development software is anticipated to grow at a CAGR of 20.6% until 2028.
Investor’s interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 30.8% returns over the past six months and 5.4% over the past three months.
In light of these encouraging trends, let’s look at the fundamentals of the three Software – Application stocks, beginning with number 3.
Stock #3: NICE Ltd. (NICE)
Based in Ra’anana, Israel, NICE together with its subsidiaries, provides cloud platforms for AI-driven digital business solutions worldwide.
NICE’s forward EV/EBIT of 16.10x is 13% lower than the industry average of 18.51x. Its forward Price/Sales multiple of 5.04 is 90.7% lower than the industry average of 2.64.
NICE’s trailing-12-month ROCE of 10.16% is significantly higher than the 1.01% industry average. Its trailing-12-month net income margin of 13.48% is 562.6% higher than the 2.03% industry average.
For the fiscal second quarter ended June 30, 2023, NICE’s total revenue were $581.11 million, up 9.5%year-over-year. Its non-GAAP net income increased 14.9% from the year-ago value to $141.51 million. The company’s non-GAAP EPS grew 14.5% from the prior-year quarter to $2.13. Also, its non-GAAP gross profit came in at $391.40 million, up 7% year-over-year.
The consensus revenue estimate of 2.36 billion for the year ending December 2023 represents a 8.3% increase year-over-year. Its EPS is expected to grow 11.7% year-over-year to $8.51 for the same period. It surpassed EPS estimates in all four trailing quarters. NICE’s shares have lost 2.2% intraday to close the last trading session at $182.92.
NICE’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NICE has a B grade for Stability and Quality. Within the Software – Application industry, it is ranked #12 out of 135 stocks. Click here for the additional POWR Ratings for Momentum, Growth, Sentiment, and Value for NICE.
Stock #2: Salesforce, Inc. (CRM)
CRM is a cloud-based software company that provides customer relationship management technology that brings companies and customers together worldwide.
CRM’s forward non-GAAP PEG of 1.10x is 36.5% lower than the industry average of 1.74x. Its forward Price/Book multiple of 3.54 is 7.5% lower than the industry average of 3.82.
CRM’s trailing-12-month levered FCF margin of 31.95% is 346% higher than the 7.16% industry average. Its trailing-12-month EBITDA margin of 23.30% is 154.6% higher than the 9.15% industry average.
During the fiscal second quarter that ended July 31, 2023, CRM’s total revenues came in at $8.60 billion, up 11.4% year-over-year, while its gross profit stood at $6.49 billion, up 16% from the year-ago quarter.
The company’s non-GAAP net income and net income per share rose 76% and 78.2% year-over-year to $2.09 billion and $2.12, respectively.
Analysts expect CRM’s revenue to increase 10.9% year-over-year to $34.77 billion for the year ending January 2024. Its EPS is expected to grow 53.7% year-over-year to $8.05 for the same period. It is EPS is expected to surpass EPS estimates in all four trailing quarters. The stock has gained 66.5% over the past nine months to close the last trading session at $221.66.
It’s no surprise that CRM has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and Sentiment and a B for Quality. It is ranked #10 in the same industry.
Beyond what is stated above, we’ve also rated CRM for Value, Stability, and Momentum. Get all CRM ratings here.
Stock #1: Karooooo Ltd. (KARO)
Headquartered in Singapore, KARO provides mobility software-as-a-service (SaaS) platforms for connected vehicles in South Africa, the rest of Africa, Europe, the Asia-Pacific, the Middle East, and the United States. The company offers Fleet Telematics, LiveVision, MiFleet, and Karooooo Logistics.
KARO’s forward EV/EBITDA of 7.29x is 49.4% lower than the industry average of 14.40x. Its forward EV/EBIT multiple of 12.15 is 34.1% lower than the industry average of 18.43.
KARO’s trailing-12-month ROCE of 25.39% is significantly higher than the 1.01% industry average. Its trailing-12-month ROTC of 21.24% is 796.9% higher than the 2.37% industry average.
KARO’s revenue for the first quarter ended May 31, 2023, rose 24.4% year-over-year to ZAR996.79 million ($55.67 million). Its gross profit rose 18.2% year-over-year to ZAR626.54 million ($34.99 million). The company’s profit for the period increased 3.6% over the prior-year quarter to ZAR161.95 million ($9.05 million).
Its EPS came in at ZAR5.09, representing an increase of 2.6% year-over-year. Additionally, its adjusted EBITDA rose 9.2% year-over-year to ZAR386.12 million ($21.56 million).
Street expects KARO’s revenue to increase 21.4% year-over-year to $232.44 million for the year ending December 2023. Its EPS is expected to grow 16.8% year-over-year to $1.23 for the same period. Shares of KARO’s have lost marginally intraday to close the last trading session at $22.86.
KARO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has an A grade for Stability and Quality and B for Value and Sentiment. To see additional KARO’s ratings for Growth and Momentum, click here.
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CRM shares were trading at $219.75 per share on Wednesday afternoon, down $1.91 (-0.86%). Year-to-date, CRM has gained 65.74%, versus a 17.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
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. More...
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