Advancements in emerging technologies, such as Artificial Intelligence (AI), Machine Learning (ML), and cloud, are expected to drive growth in the software industry. Given the rosy prospects of the industry, investors could consider quality software stocks F5, Inc. (FFIV), Docebo Inc. (DCBO), and EverCommerce Inc. (EVCM).

The digital transformation of companies and demand for cloud-based solutions are driving significant investment in the industry. Software focusing on process automation and data analytics are gaining market share as they increase efficiency.

Revenue in the software market is expected to grow at a CAGR of 5.4%, resulting in a market volume of $858.10 billion by 2028.

Moreover, Gartner forecasts global software investment to surpass $922.75 billion in 2023, a 13.7% year-over-year increase, with even higher growth expected in 2024, reaching $1.05 trillion, a 14.1% year-over-year increase. The surge is primarily due to increased demand for enterprise software and digital transformation initiatives across industries.

In addition, advancements in emerging technologies, such as Artificial Intelligence (AI), Machine Learning (ML), big data analytics, IoT, 5G, edge computing, are allowing market players to introduce new solutions and, attract potential business clients and expand their revenue streams.

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

F5, Inc. (FFIV)

FFIV provides multi-cloud application security and delivery solutions in the United States, Europe, the Middle East, Africa, and the Asia Pacific region.

On September 12, 2023, FFIV announced its continued support for Cloud Native Computing Foundation’s open telemetry, an open-source framework providing a standardized collection of tools to instrument, generate, capture, and export telemetry data (metrics, logs, and traces) to help IT teams better analyze their solutions’ performance and behavior.

FFIV’s trailing-12-month EBIT margin of 19.12% is 307.7% higher than the 4.69% industry average. Its trailing-12-month EBITDA margin of 23.13% is 155.7% higher than the 9.04% industry average.

For the fiscal fourth quarter ended September 30, 2023, FFIV’s total revenue increased marginally from the previous year’s quarter to $706.97 million. Its net income increased 70.3% from the year-ago quarter to $152.13 million. The company’s net income per share increased 71.1% from the year-ago quarter to $2.55.

The consensus revenue came in at $685.70 million for the fiscal first quarter (ending December 2023). The consensus EPS estimate of $3.04 for the same quarter indicates a 23.1% increase year-over-year. Also, the company has surpassed EPS estimates in each of the trailing four quarters, which is impressive.

FFIV’s shares have gained 10.7% over the past year to close the last trading session at $163.08.

FFIV’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

FFIV has an A grade for Quality and B in Value. It is ranked first in the B-rated Software – Business industry.  

Click here to see the additional POWR Ratings for FFIV (Momentum, Growth, Sentiment, and Stability).

Docebo Inc. (DCBO)

Headquartered in Toronto, Canada, DCBO operates as a learning management software company that provides artificial intelligence (AI)-powered learning platform in North America, Europe, and the Asia-Pacific region.

On September 28, 2023, DCBO announced the availability of Docebo for Microsoft Teams on Microsoft AppSource, an online cloud marketplace providing tailored line-of-business solutions, as well as directly through Microsoft Teams.

DCBO’s trailing-12-month gross profit margin of 80.86% is 65.4% higher than the 48.88% industry average. Its trailing-12-month levered FCF margin of 18.18% is 124.5% higher than the 8.10% industry average.

DCBO’s total revenue increased 25.8% year-over-year to $46.51 billion in the fiscal third quarter (ended September 30, 2023), while its adjusted EBITDA rose 616.2% from the year-ago quarter to $4.51 billion. The company’s adjusted net income amounted to $4.92 billion and $0.15 per share, representing 236.4% and 275% year-over-year increases, respectively.

Analysts expect DCBO’s EPS and revenue for the current quarter (ending December 30, 2023) to increase 90.5% and 24.3% year-over-year to be $0.13 and $48.43 million, respectively. The company has surpassed the EPS estimates in each of the trailing four quarters.

DCBO’s shares have gained 64.2% over the past year to close the last trading session at $50.62.

DCBO’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Sentiment and Quality and a B in Growth. It is ranked #14 out of 131 stocks in the Software – Application industry.

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

EverCommerce Inc. (EVCM)

EVCM provides integrated software-as-a-service solutions for service-based small and medium sized businesses in the United States and internationally.

On September 28, 2023, EVCM announced the availability of Docebo for Microsoft Teams on Microsoft AppSource, an online cloud marketplace providing tailored line-of-business solutions, as well as directly through Microsoft Teams. This app will be accessible on any device. Simply download and use it with your Microsoft Teams account.

EVCM’s trailing-12-month gross profit margin of 65.6% is 34.3% higher than the 48.88% industry average. Its trailing-12-month levered FCF margin of 15.16% is 87.3% higher than the 8.10% industry average.

EVCM’s total revenue increased 25.8% year-over-year to $46.51 billion in the fiscal third quarter that ended September 30, 2023. Its adjusted net income increased 236.4% year-over-year to $4.95 billion. The company’s adjusted net income per share increased 275% year-over-year to $0.15.

Street expects EVCM’s revenue to increase 6.6% year-over-year to $172.44 million in the fiscal fourth quarter ending December 2023. Its EPS for the same quarter is expected to increase 16.9% year-over-year to $0.13.

Over the past year, the stock has gained 22.5% to close the last trading session at $8.39.

EVCM’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

The stock has an A grade for Growth and Sentiment and a B in Value and Stability. It is ranked #7 in the 23-stock in the Software – SAAS industry.

To access EVCM’s additional ratings for Quality and Momentum, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

FFIV shares were unchanged in premarket trading Monday. Year-to-date, FFIV has gained 13.64%, versus a 19.18% 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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