In addition to the emergence of the highly contagiousCOVID-19 omicron variant, COVID-19 cases are resurgent in several countries. The United States could soon hit a weekly average of 100,000 cases. Consequently, remote working conditions are expected to continue, which should increase the demand for enterprise software solutions. Furthermore, with most companies adopting a hybrid working structure given its lower administrative expenses and increased employee productivity, the enterprise software industry is expected to achieve impressive growth over the long term.
The growing use of big data has made enterprise software an inherent part of the current work culture. According to a ReportLinker survey, the global enterprise software market is expected to grow at a 6.4% CAGR to $79.70 billion by 2026. However, with cut-throat competition, not all enterprise software stocks are good bets now.
So, we think it could be wise to scoop up the shares of quality enterprise software companies Oracle Corporation (ORCL) and Workday, Inc. (WDAY). But Bill.com Holdings, Inc. (BILL) and Fastly, Inc. (FSLY) look significantly overvalued at their current price levels, so they are best avoided now.
Stocks to Buy:
Oracle Corporation (ORCL)
Redwood City, Calif.-based ORCL provides products and services that address enterprise information technology environments worldwide. Its Oracle cloud software as a service offers several cloud software applications.
On November 8, ORCL opened its first cloud region in France to support the increasing cloud computing demands of private- and public-sector organizations. Karine Picard, general manager, Oracle France, said, “It is important that we offer private and public sector organizations the ability to have cloud infrastructure located in France to manage their most critical data and applications. We currently see significant growth in our cloud business that reflects our customers desire to rapidly digitize their operations so they can better serve their customers.”
ORCL’s total revenues increased 3.9% year-over-year to $9.73 billion for its fiscal 2022 first quarter, ended August 31, 2021. The company’s operating income came in at $3.43 billion, representing a 6.7% year-over-year rise. Its net income increased 9.2% year-over-year to $2.46 billion. Also, its EPS was $0.86, up 19.4% year-over-year.
For its fiscal year 2022, analysts expect ORCL’s revenue to be $42.25 billion, representing a 4.4% year-over-year rise. The company’s EPS is expected to increase 10% year-over-year to $5.16 in fiscal 2023. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 38.7% in price year-to-date.
ORCL’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equals a Strong Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its weighting.
Also, the stock has a B grade for Value, Sentiment, Stability, and Quality. Within the Software-Application industry, it is ranked #4 out of 169 stocks. Click here to see the additional POWR Ratings for Growth and Momentum for ORCL.
Workday, Inc. (WDAY)
WDAY, which is headquartered in Pleasanton, Calif., provides enterprise cloud applications to help its customers to manage critical business functions and optimize their financial and human resources. The company’s offerings include financial management applications, cloud spend management solutions, and Workday applications for planning.
On November 18, WDAY agreed to acquire VNDLY, Inc. Pete Schlampp, chief strategy officer, Workday, said, “VNDLY is at the forefront of the vendor management industry with an innovative and intuitive approach. The powerful combination of our technologies and talent will help customers better manage their evolving workforce dynamics, helping them keep pace with today’s changing world of work.”
WDAY’s subscription services increased 21% year-over-year to $1.17 billion for its fiscal third quarter, ended October 31, 2021. Its total revenues increased 20% from last year to $1.33 billion. Its net income came in at $43.41 million, compared to a $24.34 million loss in the year-ago period. And its EPS came in at $0.17, versus a $0.10 loss in the previous period.
For its fiscal 2023, analysts expect WDAY’s revenue to be $6.10 billion, representing a 19.3% year-over-year rise. In addition, the company’s EPS is expected to increase 25.9% year-over-year to $3.69 in fiscal 2022. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 15.2% in price.
WDAY has an overall B rating, which equates to a Buy in our POWR Rating system.
The stock has an A grade for Growth and a B grade for Sentiment and Quality. Within the Software-Application industry, it is ranked #16. Click here to see the additional POWR Ratings for Value, Momentum, and Stability for WDAY.
Stocks to Avoid:
Bill.com Holdings, Inc. (BILL)
BILL provides cloud-based software that simplifies, digitizes, and automates back-office financial operations worldwide for small and midsize businesses. It also offers an artificial intelligence-enabled financial software platform that creates connections. BILL is headquartered in Palo Alto, Calif.
On September 01, 2021, BILL completed its acquisition of Invoice2go, a leading mobile-first accounts receivable (AR) software provider, for $625 million. However, it might take some time for BILL to generate profits from this acquisition.
BILL’s revenue for its fiscal year 2022 first quarter (ended September 30, 2021) came in at $116.4 million, up 151.9% year-over-year. However, its net loss was $75.69 million compared to $12.95 million in the prior year’s quarter. Also, its total current liabilities came in at $3.7 billion for the period ended September 30, 2021, versus $2.33 billion for the period ended June 30, 2021. And its total liabilities were $4.45 billion compared to $3.44 billion for the same period.
In terms of forward EV/S, BILL’s 55.15x is 1,191.6% higher than the 4.27x industry average. And its 55.99x forward P/S is 1,248.1% higher than the 4.15x industry average.
Analysts expect BILL’s EPS to remain negative in its fiscal years 2022 and 2023. Moreover, its EPS is expected to decrease at the rate of 575% year-over-year in the current year and 28.7% per annum for the next five years. Over the past month, the stock has declined 15.9% in price.
BILL’s POWR Ratings reflect its poor prospects. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
It has an F grade for Value and a D grade for Growth, Stability, and Quality. We have also rated it for Momentum and Sentiment. Click here to access all the BILL ratings. BILL is ranked #153 in the Software-Application industry.
Fastly, Inc. (FSLY)
FSLY operates an edge cloud platform for processing, serving, and securing its customer’s applications worldwide. The San Francisco company delivers a category of Infrastructure as a Service that enables developers to build, secure, and deliver digital experiences at the edge of the internet.
For the third quarter, ended September 30, 2021, FSLY’s net loss was $56.20 million compared to a $23.78 million loss in the prior-year period. Also, its loss per share came in at $0.48, compared to $0.22 in the year-ago period. Furthermore, its total liabilities were $1.12 billion for the period ended September 30, 2021, compared to $158.09 million for the period ended December 31, 2020.
In terms of forward EV/S, FSLY’s 13.81x is 223.5% higher than the 4.27x industry average. And its 13.30x forward P/S is 220.3% higher than the 4.15x industry average.
FSLY’s EPS is expected to remain negative in its fiscal years 2021 and 2022. Its EPS is expected to decrease 200% in the current year. Over the past month, the stock has declined 29.9% in price.
FSLY’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to a Strong Sell. It has an F grade for Quality and a D grade for Value and Stability in our proprietary rating system.
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ORCL shares rose $0.07 (+0.08%) in premarket trading Thursday. Year-to-date, ORCL has gained 40.88%, versus a 21.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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