An increasing number of companies are fueling the demand for SaaS by transitioning to cloud-based software. In the future, businesses are expected to embrace a vertical strategy for SaaS to enhance the development of specialized and cost-effective software solutions.

Amid such conducive trends, investors could consider watching high-growth SaaS stocks, ServiceNow, Inc. (NOW), DocuSign, Inc. (DOCU), and Informatica Inc. (INFA).

The growing use of public cloud services by various enterprises is a key factor anticipated to propel the growth of the software as a service (SaaS) market during the study period. Due to the high expenses associated with on-premises software deployment, many organizations are transitioning to the SaaS model.

The future of SaaS is tied to the very same prospects of AI and ML advancements. The application of intelligent automation, personalized experience, and predictive analytics are emergent technologies that will likely reshape the entire SaaS industry. The global SaaS market is expected to grow at a CAGR of 14.8% by 2033.

Considering these factors, let’s take a look at the fundamentals of the three SaaS stocks.

ServiceNow, Inc. (NOW)

NOW provides end-to-end intelligent workflow automation platform solutions for digital businesses in North America, Europe, the Middle East and Africa, Asia Pacific, and internationally. The company operates the platform for end-to-end digital transformation, artificial intelligence, machine learning, robotic process automation, process mining, performance analytics, and collaboration and development tools.

On December 3, 2024, NOW announced an expanded strategic collaboration with new capabilities to accelerate AI-driven business transformation across every corner of the enterprise. A new connector enables the seamless use of multimodal models developed and trained on Amazon Bedrock for GenAI-powered workflows in the Now Platform. 

In terms of the trailing-12-month gross profit margin, NOW’s 79.24% is 56.4% higher than the 50.68% industry average. Likewise, its 7.51% trailing-12-month Return on Total Capital is 137.4% higher than the 3.16% industry average.

During the fiscal third quarter that ended September 30, 2024, NOW’s non-GAAP total revenues increased 22% year-over-year to $2.79 billion. Its non-GAAP income from operations grew 31% from the year-ago value to $872 million. In addition, the company’s non-GAAP net income and non-GAAP EPS came in at $775 million and $3.72.

Over the past three and five years, NOW’s revenue has grown at CAGRs of 23.7% and 26.6%, respectively. Over the same periods, its net income has grown as CAGRs of 82.2% and 107.2%, respectively.

Analysts expect NOW’s EPS and revenue for the fourth quarter ended December 31, 2024, to increase 17.4% and 21.6% year-over-year to $3.65 and $2.96 billion, respectively. It surpassed Street EPS and revenue estimates in each of the trailing four quarters, which is promising.

Shares of NOW have gained 20.6% over the past three months to close the last trading session at $1073.77.

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

NOW has a B in Growth, Momentum, Sentiment, and Quality. It is ranked #13 out of 41 stocks in the B-rated Software – Business industry.

Beyond what we have stated above, we also have given NOW grades for Value and Stability. Get all the NOW’s ratings here.

DocuSign, Inc. (DOCU)

DOCU provides digital solutions like e-signatures, contract management, and industry-specific tools, serving businesses, government agencies, and professionals to streamline and secure agreement processes.

On November 20, 2024, DOCU launched “DocuSign for Developers,” empowering developers and businesses to enhance agreement management on its Intelligent Agreement Management platform. This initiative strengthens DOCU’s ecosystem and expands its integration and scalability capabilities, boosting its market appeal.

In terms of the trailing-12-month gross profit margin, DOCU’s 80.16% is 58.2% higher than the 50.68% industry average. Its 38.94% trailing-12-month levered FCF margin is 245.8% higher than the 11.26% industry average.

In the fiscal third quarter ended October 31, 2024, DOCU’s total revenue increased 7.8% year-over-year to $754.82 million. 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, up 15.1% and 13.9% over the prior-year quarter, respectively.

Over the past three and five years, DOCU’s revenue grew at respective CAGRs of 14.2% and 26.5%. Its EBITDA has grown at a CAGR of 183% over the past three years.

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 the consensus EPS and revenue estimates in all of the trailing four quarters.

DOCU’s stock gained 12.1% over the past month to close the last trading session at $90.21.

DOCU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Growth and Momentum. DOCU is ranked #3 out of 18 stocks in the Software – SAAS industry.

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

Informatica Inc. (INFA)

INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-vendor, multi-cloud, and hybrid systems at enterprise scale worldwide.

On December 10, INFA announced that Yamaha Corporation, a world-renowned leader in musical instrument manufacturing, has selected INFA to implement its Master Data Management (MDM) to unify dispersed data across its enterprise and deliver trusted data and provide AI-powered insights and a contextual 360-degree view of its business.

On November 12, INFA expanded the industry’s first enterprise GenAI-powered data management assistant, CLAIRE GPT, in Europe and the Asia Pacific (APAC) regions, followed by its launch in North America this year. The expansion allows customers more flexibility and accessibility to leverage GenAI-powered data management capabilities.

INFA’s trailing-12-month gross profit margin of 80.25% is 58.4% higher than the industry average of 50.68%. Its trailing-12-month EBITDA margin of 16.98% is 62.9% higher than the 10.42% industry average.

For the third quarter that ended September 30, 2024, INFA’s total revenues increased 3.4% year-over-year to $422.48 million. Its non-GAAP income from operations stood at $151.04 million, indicating an increase of 18% year-over-year. The company’s non-GAAP net income came in at $88.95 million or $0.28 per share, up 10.3% and 3.7% from the prior year’s quarter, respectively.

In addition, the company reported an adjusted EBITDA of $154.79 million, which is 17.1% higher than the prior year’s quarter. Adjusted free cash flow rose 85.5% year-over-year to $107.78 million.

Over the past three years, INFA’s revenue and operation income (EBIT) grew at CAGRs of 5.4% and 15.6%, respectively.

According to the company’s financial guidance for the fourth quarter of 2024, INFA expects total revenues of $448 million to $468 million, reflecting 2.9% year-over-year growth. Its non-GAAP operating income is expected to range from $162 million to $182 million.

For the full year 2024, INFA projects total revenue to range between $1.66 billion and $1.68 billion and its non-GAAP operating income to range from $538 million-$558 million. The company also expects adjusted unlevered free cash flow between $545 million and $565 million.

Street expects INFA’s revenue and EPS for the fourth quarter (ended December 2024) to increase 2.7% and 17.4% year-over-year to $457.02 million and $0.38, respectively. Furthermore, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.

The stock has gained 10.6% over the past three months, closing the last trading session at $26.50.

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

The stock has a B grade for Quality, Momentum, and Growth. It is ranked #7 in the Software – SAAS industry.

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

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NOW shares were trading at $1,071.99 per share on Monday afternoon, down $1.78 (-0.17%). Year-to-date, NOW has gained 1.12%, versus a 1.49% 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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