Businesses are increasingly adopting public and hybrid cloud-based tools, facilitating scalability and flexibility in operations. Thus, investors could consider investing in fundamentally sound cloud stocks: Salesforce, Inc. (CRM), Zoom Communications Inc. (ZM), and DocuSign, Inc. (DOCU).

Cloud computing has become an indispensable part of modern business operations, offering a wide range of benefits driving its rapid adoption. The versatility of cloud computing has led to its adoption across various industries and diverse use cases. Enterprises are increasingly implementing cloud solutions to improve mobility and decentralized data storage and computing.

On top of it, IMARC Group expects the global software as a service market to grow at a CAGR of 14.8% by 2033. The incorporation of AI and ML into SaaS solutions enhances operational efficiency and enables advanced data analytics, thereby driving market growth.

Considering these factors, let’s take a look at the fundamentals of the three cloud software stock picks.

Salesforce, Inc. (CRM)

CRM provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company’s service includes sales to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence, and deliver quotes, contracts, and invoices.

In terms of the trailing-12-month EBITDA margin, CRM’s 25.70% is 147.3% higher than the 10.39% industry average. Likewise, its 76.94% trailing-12-month gross profit margin is 52.6% higher than the 50.44% industry average. Its 19.75% trailing-12-month EBIT margin is 279% higher than the 5.21% industry average.

CRM’s total revenues for the fiscal third quarter that ended on October 31, 2024, rose 8.3% year-over-year to $9.44 billion. Similarly, the company’s non-GAAP net income and non-GAAP net income per share came in at $2.32 billion and $2.41 per share, up 12.2% and 14.2% over the prior-year quarter, respectively.

Street expects CRM’s EPS and revenue for the quarter ending January 31, 2024, to increase 14.2% and 8.1% year-over-year to $2.61 and $10.04 billion, respectively. It surpassed the consensus revenue and EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 34% to close the last trading session at $350.57.

CRM’s POWR Ratings reflect its robust 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.

It has a B grade for Quality. It is ranked #19 out of 126 stocks in the Software – Application industry.

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

Zoom Communications Inc. (ZM)

ZM provides a comprehensive, unified communications platform, offering products such as Zoom Meetings, Zoom Phone, Zoom Rooms, and Zoom Webinars, alongside solutions like the Zoom Developer Platform and Zoom Contact Center. Its services cater to diverse end-users, including individuals and industries like education, healthcare, finance, government, and retail.

In terms of the trailing-12-month EBITDA margin, ZM’s 19.23% is 85.1% higher than the 10.39% industry average. Likewise, its 75.83% trailing-12-month gross profit margin is 50.3% higher than the 50.44% industry average. Its 16.74% trailing-12-month EBIT margin is 221.4% higher than the 5.21% industry average.

During the fiscal third quarter that ended October 31, 2024, ZM’s revenue increased 3.6% year-over-year to $1.18 billion. Its non-GAAP income from operations grew 2.4% from the year-ago value to $457.79 million. In addition, the company’s non-GAAP net income and non-GAAP net income per share came in at $435.07 million and $1.38, up 8.4% and 7% over the prior-year quarter, respectively.

Street expects ZM’s revenue for the fiscal year (ending January 31, 2025) to increase 3.2% year-over-year to $4.67 billion. Its EPS for the same year is expected to increase 5.1% year-over-year to $5.47. It surpassed Street’s revenue and EPS estimates in all of the trailing four quarters, which is impressive.

Over the past six months, the stock has gained 48.6% to close the last trading session at $84.60.

ZM’s robust 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 a B grade for Value and Quality. ZM is ranked #14 out of 78 stocks in the Technology – Services industry.

Click here to access the additional ZM ratings (Growth, Sentiment, Momentum, and Stability).

DocuSign, Inc. (DOCU)

DOCU provides electronic signature solutions and tools like Contract Lifecycle Management, Document Generation, and Gen for Salesforce, catering to businesses, real estate professionals, and government agencies. Its features support identification, notarization, and compliance needs for users across industries, including life sciences and federal institutions.

DOCU’s 80.16% trailing-12-month gross profit margin is 58.9% higher than the 50.44% industry average. Its 6.17% trailing-12-month EBIT margin is 18.5% higher than the 5.21% industry average.

In the fiscal third quarter ended October 31, 2024, DOCU’s total revenue reached $754.82 million, up 7.8% year-over-year. Its non-GAAP income from operations was $223.08 million, up 19% from the year-ago value. Moreover, its non-GAAP net income and non-GAAP net income per share stood at $ 188.50 million and $0.90, respectively, representing increases of 15.1% and 13.9% over the prior-year quarter.

Street expects DOCU’s revenue and EPS for the fourth quarter ending January 31, 2025, to increase 6.8% and 11.1% year-over-year to $760.94 million and $ 0.84, respectively. It surpassed Street revenue and EPS estimates in all of the trailing four quarters.

Over the past year, the stock has gained 55.6% to close the last trading session at $98.17. It soared 65.1% year-to-date.

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

The stock has an A grade for Quality and a B for Growth. DOCU is ranked #4 out of 18 stocks in the Software – SAAS industry.

In addition to the POWR Ratings highlighted above, one can access DOCU’s ratings (Momentum, Value, Stability, and Sentiment) here.

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CRM shares were trading at $347.91 per share on Wednesday afternoon, down $2.66 (-0.76%). Year-to-date, CRM has gained 32.80%, versus a 27.48% 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. More...

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