The software industry has been witnessing growing demand, with more businesses automating their processes and migrating to the cloud to facilitate hybrid working models. As the adoption of advanced technologies such as hybrid architecture, artificial intelligence, and machine learning continues to rise, the industry should benefit. The global software market is expected to reach $823.71 million by 2026, registering a 7.2% CAGR.
According to Gartner, worldwide IT spending is expected to reach $4.1 trillion in 2021. Since the resurgence of COVID-19 cases could delay office reopening, remote working trends are expected to persist. This should bode well for software companies.
Given this backdrop, we think it could be wise to bet on prominent software stocks NetSol Technologies, Inc. (NTWK) and Evolving Systems, Inc. (EVOL), which look undervalued at their current price levels. These companies are expected to keep thriving based on their solid fundamentals.
NetSol Technologies, Inc. (NTWK)
Incorporated in 1997, NTWK in Calabasas, Calif., provides state-of-the-art solutions, cost-effective capabilities, and consulting services to the global finance and leasing industry. The company’s software delivers businesses to clients with smart work engines and the freedom to evolve. Self-Point of Sale, Mobile Account, Web Point of Sale, Mobile Field Investigator, and Mobile Auditor are some products under NTWK’s digital segment.
Last month, NTWK partnered with Motorcycle Group to deploy a cloud-based version of its flagship NFS Ascent platform across the customer’s entire operations. NFS Ascent is an NTWK product built on cutting-edge technology that enables auto, equipment, big-ticket finance companies, and other businesses to run easily. This agreement marks the first official sale for the company’s NFS Ascent in the U.S. market.
NTWK’s total net revenues increased 1.9% year-over-year to $13.78 million in its fiscal third quarter, ended March 31, 2021. The company’s gross profit increased 6.7% from its year-ago value to $6.43 million. Its income from operations came in at $0.46 million, compared to a $0.38 million loss from operations in the third quarter of 2020. Also, its other income increased 2,967% from the prior-year quarter to $0.52 million.
Analysts expect NTWK’s revenue for its fiscal year 2021 to be $59.7 million, representing 5.9% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. In addition, the company’s EPS is expected to grow at a 28% rate per annum over the next five years.
In terms of trailing-12-months EV/Sales, NTWK is currently trading at 0.68x, which is 84.6% lower than the 4.42X industry average. And in terms of its trailing-12-months Price/Sales, the stock is currently trading at 0.87x, which is 79.8% lower than the 4.28x industry average. NTWK’s stock price has surged 2.6% over the past nine months and 45.1% over the past year.
NTWK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an A grade for Value, and a B grade for Quality and Sentiment. We’ve also graded NTWK for Growth, Stability, and Momentum. Click here to access all NTWK’s ratings.
NTWK is ranked #18 of 128 stocks in the Software-Application industry.
Evolving Systems, Inc. (EVOL)
Englewood, Colo.-based EVOL is a real-time digital engagement accelerator that empowers communications service providers (CSP) to increase revenue per user, reduce friction, improve retention and maximize customer satisfaction. The company’s business solutions include marketing services, smart dealer, customer value management, Dynamic SIM Activation, and Tertio Service Activation.
In June, Cellcard Cambodia, a 5G services provider, expanded its relationship with EVOL to enhance its loyalty program. Cellcard Club will introduce more personalized and relevant offers to subscribers through various digital media. So, with this expansion, EVOL is expected to deliver real-time and innovative digital customer engagement to its customers.
For the second quarter, ended June 30, 2021, EVOL’s total revenue increased 10.5% year-over-year to $6.99 million. The company’s income from operations grew 19% from its year-ago value to $0.35 million. Its services revenue came in at $6.99 million, up 12.1% year-over-year. Also, the company’s net income amounted to $953,000, compared to a $48,000 net loss in the prior-year quarter.
EVOL’s EPS is expected to grow at a 15% rate per annum over the next five years. In terms of trailing-12-months EV/Sales, EVOL is currently trading at 0.85x, which is 80.8% lower than the 4.42x industry average. Also, in terms of its trailing-12-months Price/Sales, the stock is currently trading at 0.97x, which is 77.3% lower than the 4.28x industry average. EVOL’s stock price has surged 118.2% over the past year.
EVOL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Value and Quality.
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NTWK shares were trading at $3.90 per share on Wednesday morning, up $0.01 (+0.26%). Year-to-date, NTWK has gained 2.63%, versus a 19.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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