We live in a highly digitized age, and software applications are crucial in helping businesses make their processes efficient. Given the growing reliance on software applications across different industries, the industry is well-positioned to grow.

Therefore, it could be wise to buy fundamentally strong software stocks Nutanix, Inc. (NTNX), Karooooo Ltd. (KARO), and Commvault Systems, Inc. (CVLT), given the positive sentiment around their prospects.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the software application industry is well-placed to grow.

Software has become an integral part of an organization’s success. With growing investments in digitization, the demand for software applications has increased significantly. Cloud adoption has been a major driver for the application software industry’s growth as cloud-based software has become much more accessible and affordable.

The industry’s growth is expected to be further enhanced by integrating generative AI into software applications. Software application makers are now integrating generative AI functions to boost productivity, streamline processes, and automate tasks.

Gartner forecasts software spending to increase 13.7% year-over-year to $922.75 billion this year. Gartner’s Distinguished VP Analyst John-David Lovelock said, “Generative AI’s best channel to market is through software, hardware, and services that organizations are already using. Every year, new features are added to tech products and services as add-ons or upgrades.”

“Most enterprises will incorporate generative AI in a slow and controlled manner through upgrades to tools that are already built into IT budgets,” he added.

Considering these conducive trends, let’s evaluate the fundamentals of three Software – Application stock picks, starting with number 3.

Stock #3: Nutanix, Inc. (NTNX)

NTNX provides an enterprise cloud platform in North America, Europe, the Asia Pacific, the Middle East, Latin America, and Africa. The company offers a hyperconverged infrastructure software stack that converges virtualization, storage, and networking services into a turnkey solution. It serves customers in various industries, including automotive, consumer goods, education, energy, financial services, healthcare, manufacturing, etc.

On September 14, 2023, NTNX announced that Micron Technology, Inc. (MU) selected it to build a cloud platform for MU’s manufacturing facilities globally. NTNX’s President and CEO Rajiv Ramaswami said, “We are proud to have provided Micron with a solution that they expect will meaningfully reduce their cost while also enabling enhanced agility in deploying new products and responding to changing market demands.”

“We see this win as a testament to the performance, scalability, and total cost of ownership benefits delivered by our platform, and our ability to expand our footprint within some of the world’s largest companies,” he added.

In terms of the trailing-12-month levered FCF margin, NTNX’s 12.65% is 71.6% higher than the 7.37% industry average. Likewise, its 82.18% trailing-12-month gross profit margin is 67.4% higher than the 49.10% industry average. Furthermore, the stock’s 0.76x trailing-12-month asset turnover ratio is 23.1% higher than the 0.62x industry average.

For the fiscal fourth ended July 31, 2023, NTNX’s annual contract value (ACV) billings rose 44.3% year-over-year to $278.70 million. Its annual recurring revenue (ARR) increased 29.9% over the prior year quarter to $1.56 billion. The company’s revenue rose 28.2% year-over-year to $494.21 million.

Its non-GAAP operating income came in at $63.62 million, compared to a non-GAAP operating loss of $37.83 million in the year-ago quarter. In addition, its non-GAAP net income came in at $67.54 million, compared to a non-GAAP net loss of $38.84 million in the prior year quarter. Also, its non-GAAP EPS came in at $0.24, compared to a non-GAAP loss per share of $0.17 in the year-ago quarter.

Analysts expect NTNX’s EPS and revenue for the quarter ending October 31, 2023, to increase 484% and 15.4% year-over-year to $0.18 and $500.47 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 66.9% to close the last trading session at $34.76.

NTNX’s POWR Ratings reflect solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the Software – Application industry, it is ranked #10 out of 132 stocks. It has an A grade for Growth and a B for Sentiment and Quality. Click here to see the additional ratings of NTNX for Value, Momentum, and Stability.

Stock #2: 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.

In terms of the trailing-12-month EBITDA margin, KARO’s 36.62% is 300.1% higher than the 9.15% industry average. Likewise, its 16.24% trailing-12-month net income margin is 698.3% higher than the 2.03% industry average. Furthermore, its 15.66% trailing-12-month Capex/Sales is 546.2% higher than the 2.42% industry average.

KARO’s revenue for the first quarter ended May 31, 2023, rose 24.4% year-over-year to ZAR996.79 million ($52.24 million). Its gross profit rose 18.2% year-over-year to ZAR626.54 million ($32.84 million). The company’s profit for the period increased 3.6% over the prior-year quarter to ZAR161.95 million ($8.49 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 ($20.24 million).

Street expects KARO’s EPS and revenue for the quarter ending August 31, 2023, to increase 9% and 20.4% year-over-year to $0.29 and $56.52 million, respectively. Over the past six months, the stock has declined 12.1% to close the last trading session at $20.40.

KARO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It is ranked #4 in the same industry. It has an A grade for Stability and Quality and a B for Value and Sentiment. To see KARO’s ratings for Growth and Momentum, click here.

Stock #1: Commvault Systems, Inc. (CVLT)

CVLT provides a data protection platform that helps customers to secure, defend, and recover their data. The company offers Commvault Backup and Recovery, a backup and recovery solution; Commvault Disaster Recovery, a replication and disaster recovery solution; Commvault Complete Data Protection, a data protection solution; and Metallic Data Protection as-a-service, which delivers enterprise-grade data protection.

On July 13, 2023, CVLT announced the launch of Metallic: Salesforce Backup, Recovery & Sandbox Seeding – Unlimited Storage on Salesforce AppExchange, providing customers with dedicated protection for their Salesforce cloud data, expanding upon native capabilities to offer extended retention, data isolation, sandbox masking and seeding, rapid recovery tools, and more.

In terms of the trailing-12-month EBIT margin, CVLT’s 7.89% is 71.9% higher than the 4.59% industry average. Likewise, its 82.52% trailing-12-month gross profit margin is 68.1% higher than the 49.10% industry average. Furthermore, the stock’s 1.02x trailing-12-month asset turnover ratio is 65.4% higher than the 0.62x industry average.

For the fiscal first quarter ended June 30, 2023, CVLT’s revenues rose marginally year-over-year to $198.15 million. Its non-GAAP income from operations rose 7.2% year-over-year to $43.53 million. The company’s non-GAAP earnings per share came in at $0.72, representing an increase of 12.5% year-over-year.

Additionally, its non-GAAP net income rose 10.3% year-over-year to $32.53 million. Also, its non-GAAP free cash flow increased 75.7% year-over-year to $37.89 million.

For the quarter ending September 30, 2023, CVLT’s EPS and revenue are expected to increase 12.7% and 3.8% year-over-year to $0.64 and $195.21 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 28.8% to close the last trading session at $68.29.

CVLT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

Within the Software – Application industry, it is ranked #2. It has an A grade for Growth and Quality and a B for Value and Sentiment. Click here to see the ratings of CVLT for Momentum and Stability.

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NTNX shares were trading at $34.54 per share on Tuesday morning, down $0.22 (-0.63%). Year-to-date, NTNX has gained 32.59%, versus a 11.86% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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