Technology has become an essential component of an organization’s digital strategy, and the transition to public cloud services has resulted in revenue stability. Customer and employee experience, data-driven decision-making, and automation are three major themes driving the software market.

Thus, investors could consider investing in fundamentally sound mid-cap software stocks: Open Text Corporation (OTEX), Tenable Holdings, Inc. (TENB), and Commvault Systems, Inc. (CVLT), with significant upside potential.

Businesses rely on software solutions to streamline operations, improve customer experiences, obtain data-driven insights, and safeguard their systems as they adapt to and compete in the dynamic digital landscape. The U.S. software market is estimated to grow at a CAGR of 7.2% by 2024.

Artificial intelligence (AI) and Machine Learning (ML) are also playing a transformative role in the application software market. AI-powered applications are increasingly integrated into business processes to automate tasks, enhance decision-making, and deliver personalized experiences. 

Considering these factors, let’s take a look at the fundamentals of the three software stock picks.

Open Text Corporation (OTEX)

Valued at $7.57 billion by market cap, OTEX engages in the provision of information management products and services. The company offers content services, including content collaboration and intelligent capture, as well as records management, collaboration, e-signatures, and archiving.

In terms of the trailing-12-month EBITDA margin, OTEX’s 27.78% is 167.7% higher than the 10.38% industry average. Likewise, its 76.56% trailing-12-month gross profit margin is 50.2% higher than the 50.98% industry average. Its 18.45% trailing-12-month EBIT margin is 242.9% higher than the 5.38% industry average.

In terms of forward non-GAAP P/E, OTEX is trading at 7.74x, 69.5% lower than the industry average of 25.36x. Likewise, the stock’s forward Price/Sales multiple of 1.40 is 57.1% lower than the industry average of 3.25. Also, its forward EV/EBITDA of 7.32x is 52.6% lower than the industry average of 15.46x.

OTEX’s cloud services and subscriptions for the fiscal first quarter that ended on September 30, 2024, rose 1.3% year-over-year to $457 million. Similarly, the company’s net income and EPS are at $84 million and $0.32 per share, up 4.3% and 6.7% over the prior-year quarter, respectively.

Street expects OTEX’s EPS and revenue for the year ending June 30, 2024, to increase 13.6% and 2.4% year-over-year to $4.15 and $5.44 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters.

The stock has gained marginally intraday to close the last trading session at $28.42.

Based on seven Wall Street analysts offering 12-month price targets for OTEX in the last three months, the average target price is $34.71, indicating a 22.1% change from the last price, with a high forecast of $38 and a low forecast of $32.

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

It has an A grade for Value and a B for Growth. It is ranked #16 out of 125 stocks in the Software – Application industry.

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

Tenable Holdings, Inc. (TENB)

Valued at $4.72 billion by market cap, TENB provides cyber exposure solutions in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan. Its platforms include Tenable Vulnerability Management and Tenable Cloud Security.

TENB’s 77.55% trailing-12-month gross profit margin is 52.1% higher than the 50.98% industry average. Its 21.70% trailing-12-month levered FCF margin is 91.9% higher than the 11.31% industry average.

During the fiscal third quarter that ended September 30, 2024, TENB’s revenue increased 13% year-over-year to $227.09 million. Its gross profit grew 2.4% from the year-ago value to $176.59 million. In addition, the company’s non-GAAP net income and non-GAAP net income per share came in at $39.32 million and $0.32, up 42.1% and 39.1% over the prior-year quarter, respectively.

Street expects TENB’s revenue for the fiscal fourth quarter (ending December 31, 2024) to increase 8.7% year-over-year to $231.81 million. Its EPS for the same quarter is expected to increase 37.8% year-over-year to $0.34. It surpassed Street’s revenue and EPS estimates in all of the trailing four quarters, which is impressive.

Over the past three months, the stock has plunged 3% to close the last trading session at $39.29.

Based on 14 Wall Street analysts offering 12-month price targets for TENB in the last three months, the average target price is $49.50, indicating a 26% change from the last price, with a high forecast of $55 and a low forecast of $44.

TENB’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

The stock has an A grade for Growth. TENB is ranked #4 out of 20 stocks in the B -rated Software – Security industry.

Click here to access the additional TENB ratings (Value, Quality, Sentiment, Momentum, and Stability).

Commvault Systems, Inc. (CVLT)

Valued at $6.61 billion by market cap, CVLT provides a platform that enhances cyber resiliency by protecting the data in the United States and internationally. The company offers Operational Recovery and Autonomous Recovery.

CVLT’s 80.09% trailing-12-month gross profit margin is 61% higher than the 50.98% industry average. Its 9.64% trailing-12-month EBIT margin is 79.1% higher than the 5.38% industry average.

In terms of forward non-GAAP P/E, CVLT is trading at 44.77x, 76.1% lower than the industry average of 25.42x. Likewise, the stock’s forward Price/Sales multiple of 7.04 is 116.6% lower than the industry average of 3.25. Also, its forward EV/EBITDA of 31.28x is 101% lower than the industry average of 15.56x.

In the fiscal second quarter ended September 30, 2024, CVLT’s total revenues reached $233.28 million, up 7.8% year-over-year. Moreover, net income and net income per share stood at $ 15.57 million and $0.35, respectively, representing increases of 15.1% and 13.9% over the prior-year quarter.

Street expects CVLT’s revenue and EPS for the third quarter ending December 31, 2024, to increase 13.4% and 12.1% year-over-year to $245.81 million and $ 0.87, respectively. It surpassed Street revenue and EPS estimates in all of the trailing four quarters.

Over the past year, the stock has gained 89.3% to close the last trading session at $151.19.

Based on five Wall Street analysts offering 12-month price targets for TENB in the last three months, the average target price is $175.50, indicating a 16.1% change from the last price, with a high forecast of $200 and a low forecast of $140.

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

The stock has an A grade for Quality. CVLT is ranked #18 out of 125 stocks in the B-rated Software – Application industry.

In addition to the POWR Ratings highlighted above, one can access CVLT’s ratings (Momentum, Growth, Value, Stability, and Sentiment) here.

What To Do Next?

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OTEX shares were trading at $28.25 per share on Tuesday afternoon, down $0.17 (-0.60%). Year-to-date, OTEX has declined -29.97%, versus a 24.71% 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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