In this digital era, organizations are increasingly adopting Software-as-a-Service (SaaS) as a part of their business operations. As of 2022, the SaaS space is valued at $170 billion. The industry has increased in size by around 500% over the past seven years.

Widespread digitization and the ongoing cloud migration of companies’ operations are fueling the continued growth of the global SaaS market, which is expected to reach $720.44 billion by 2028 at a 25.9% CAGR.

Given this backdrop, the fundamentally strong SaaS stock Informatica Inc. (INFA - Get Rating) might be a solid buy now.

On the other hand, the stock market has remained under pressure on concerns surrounding the Fed’s consecutive rate hikes and a possible recession. The August inflation report has caused a downturn in big tech stocks. The Fed is expected to dish out another 0.75 percentage point rate hike this month.

Given the volatility in the market, UiPath Inc. (PATH - Get Rating) might be best avoided, considering its weak fundamentals.

Stock to Buy:

Informatica Inc. (INFA - Get Rating)

INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale in the United States. The company also offers maintenance and professional services.

On August 25, INFA announced that HelloFresh is leveraging INFO’s data management solutions to improve forecasting, scale to meet demand, and manage data as a strategic asset. INFA might stand to benefit from this venture.

On August 17, INFA announced that it is working with La Trobe University in Australia to implement INFO’s Customer 360, a modern, AI-powered cloud-native SaaS solution to enhance student lifecycle management. The project is expected to be implemented in phases, starting with Customer 360 to enable a 360-degree view of student data.

INFA’s total revenue increased 8.8% year-over-year to $372.04 million in the second quarter that ended June 30. Its gross profit grew 8.8% from the year-ago value to $285.63 million, while its non-GAAP net income improved 34.1% year-over-year to $44.90 million. The company’s non-GAAP net income per share increased 23.1% from its year-ago value to $0.16.

The consensus EPS estimate of $0.22 for the fourth fiscal quarter ending December 2022 indicates a 7.5% improvement year-over-year. The consensus revenue is expected to rise 4.4% year-over-year to $424.63 million for the same quarter. Additionally, INFA has topped EPS estimates in three of the trailing four quarters, which is impressive.

INFA has gained 31.5% over the past six months and 2.6% intraday to close its last trading session at $22.06. The stock has gained 22.6% year-to-date.

INFA’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

INFA is rated an A in Sentiment and a B in Growth. Within the Software – SAAS industry, it is ranked #1 of 25 stocks.

Beyond what we’ve stated above, we have also given INFA grades for Value, Momentum, Stability, and Quality. Click here to get all INFA ratings.

Stock to Avoid:

UiPath Inc. (PATH - Get Rating)

PATH provides an end-to-end automation platform that offers a range of robotic process automation (RPA) solutions. The company offers a suite of interrelated software to build, manage, run, and govern automation within the organization. It serves banking, healthcare, financial services, and government entities.

In the second quarter that ended July 31, PATH’s total cost and expenses increased 23.3% from its prior-year quarter to $317.84 million. Its operating loss increased 22.9% from the prior-year quarter to $120.19 million. Non-GAAP net income came in at a negative $11.41 million, indicating a decrease of 372.6% from its year-ago value. The company’s net income per share declined 300% year-over-year to a negative $0.02.

PATH’s consensus EPS is estimated to be a negative $0.04 for the third fiscal quarter ending October. Its consensus revenue is estimated to be $246.66 million for the same quarter.

The stock has declined 74.4% over the past year and 66.7% year-to-date to close its last trading session at $14.33. 

PATH’s POWR Ratings reflect its poor prospects. The stock’s overall D rating equates to a Sell in our proprietary rating system. It is also graded a D in Growth, Momentum, Stability, Sentiment, and Quality. 

PATH is ranked #24 in the same industry. Click here to see additional POWR Ratings for PATH (Growth).

PATH shares fell $0.04 (-0.26%) in after-hours trading Thursday. Year-to-date, PATH has declined -64.83%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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