Due to COVID-19, the premium for ‘secular growth’ themes has expanded. Some of the most notable are cloud computing, automation, and artificial intelligence. These are having immense impacts on businesses and are each going to become $1 trillion industries within a decade. Companies will have to invest in these areas to remain competitive. 

According to a McKinsey Global Survey of executives, COVID-19 has pushed companies to accelerate their digital transformation. 

No wonder that the big technology companies have attracted investor attention amid the pandemic and witnessed skyrocketing rally, but a few innovative mid-cap software players like Paylocity Holding Corporation (PCTY), Five9, Inc. (FIVN), Manhattan Associates, Inc. (MANH), and SailPoint Technologies Holdings, Inc. (SAIL) with immense growth potential are still under the radar. So, it’s worth betting on these stocks now, while they remain underfollowed.

Paylocity Holding Corporation (PCTY)

PCTY provides cloud-based services for payroll and human capital management as well as software solutions to medium enterprises. The company provides its services in the software-as-a-service (SaaS) delivery model which includes workforce management, talent management, employee engagement as well as analytics. PCTY served close to 20,000 clients in 2019 across verticals such as financial services, healthcare, manufacturing, restaurants, and hospitality. The objective of the company is to bring efficient handling of human resource solutions and strategic decision making for its clients.

In April, PCTY announced the acquisition of VidGrid, a leading video-platform provider that offers e-learning course modules. Through this collaboration, PCTY intends to enhance employee engagement and improve the functionality of workplace communication. This acquisition is relevant amid the ‘new normal’ wherein remote working is on the rise and employee learning and development to operate independently is the need of the hour.

PCTY’s revenue for the fourth quarter ended June 2020 climbed 8% year-over-year to $130.6 million. Recurring and other revenue represented 99% of the total revenue and saw a 13% year-over-year rise for the quarter. The company’s EPS dropped to $0.09 compared to $0.19 in the prior-year period. For the first quarter of fiscal 2021, the consensus revenue estimate is $134.09 million, while EPS is expected to decline 58.3% to $0.15.

The stock has gained 56.4% year-to-date to close yesterday’s trading session at $189.05. PCTY saw a significant spurt in its price in the past one month following its encouraging revenue growth in the fourth quarter. The stock has gained nearly 89% in the last six months.

How does PCTY stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating

The stock is also ranked #8 out of 96 stocks in the Software – Application industry.

Five9, Inc. (FIVN)

FIVN is a leading software provider for the cloud contact center and is focused on driving contact center productivity, customer engagement, and enhancing brand loyalty for its clients. The company offers end-to-end solutions which include Customer Relationship Management (CRM), workforce management, and analytics. FIVN has served more than 2000 customers globally and addresses over 3 billion customer interactions annually.

FIVN unveiled Five9 Agent Assist, a facility that extends Five9 Intelligent Cloud Contact Center capabilities focused on assisting the agent during and after calls. Its new feature, called Assisted Summarization, is based on AI and real-time call transcriptions.  The core idea of this offering is to lower the cost by reducing the workload of the agent post-call and driving efficiency in the customer management process.

In the second quarter, FIVN’s revenue grew 29% year-over-year to $99.8 million. The company’s loss per share expanded to $0.25 from $0.03 in the same period last year. FIVN’s operating cash flow climbed to $14.8 million, marking the eighteenth consecutive quarter of positive cash flow.

The consensus EPS estimate of $0.18 for the quarter ended September indicates a 10.1% decline year-over-year. The street estimates FIVN’s revenue for the third quarter to increase 20.6% year-over-year to $101.06 million. On-premises to the cloud and digital transformation trends are likely to be the biggest growth drivers for the company. FIVN’s revenue is expected to climb higher as most organizations are opting for remote business and replacing the retail personnel with contact centers.

FIVN closed yesterday’s trading session at $145.80, gaining nearly 122% year-to-date. The stock climbed 82.3% in the last six months and is trading very close to its 52-week high of $146.50. The company is gaining immensely from enterprise subscriptions amid the pandemic. The COVID-19 has boosted the $30 billion Contact center market, and FIVN is all set to flourish against this favorable backdrop. Unlike other firms that resorted to pay cuts and layoffs, FIVN offered a COVID-19 bonus worth $1.8 million to its employees across levels.

FIVN’s POWR Ratings reflect a strong momentum. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. Its Industry Rank is “B”. Among the 96 stocks in the Software – Application industry, it’s ranked #9.

Manhattan Associates, Inc. (MANH)

MANH develops and provides software solutions to supply chain commerce. The company offers optimized solutions for managing supply chains, inventory, and omnichannel operations for manufacturers, wholesalers, retailers, and logistics providers. MANH’s Omni-Channel Solutions provides Omni-Channel Central Solutions as well as Omni Channel Local Solutions, while its Inventory solutions include Inventory Optimization and Planning. The company has offered its software and hardware solutions to over 1200 customers globally in industries such as food & beverage, pharmaceutical, consumer goods, and government organizations.

Earlier this month, MANH announced that L’Oréal, the leading global beauty brand, has chosen its scalable and agile SaaS-based solution, Manhattan Active® Warehouse Management. The first phase of implementation would commence by mid-2021, while the worldwide deployment across all the distribution centers of L’Oréal is likely to be completed by the end of 2023. MANH states that Manhattan Active Warehouse Management is the world’s first cloud-native enterprise-class warehouse management system which can unify every aspect of distribution, and doesn’t require upgrading.

In the second quarter ended June 2020, MANH saw a 12.1% year-over-year drop in revenue to $135.6 million. However, its cloud subscription revenue nearly doubled in the quarter. The cloud business is the company’s key strength, both in terms of revenue and bookings. MANH has an upbeat long-term outlook on the back of rising demand for innovative solutions in the supply chain and Omnichannel commerce markets.

MANH’s EPS for the first quarter stood at $0.30, which is 6.25% lower than that of the year-ago period. Street estimates the EPS for the third quarter to be $0.39, which indicates a year-over-year decline of 23.5%. Meanwhile, the revenue is expected to drop 14.4% to $138.8 million.

The stock has gained 30.45% year-to-date to close yesterday’s trading session at $104.03. The stock has returned more than 85% in the past six months. MANH is witnessing a strong momentum as the fear of global slowdown is prompting businesses to depend on supply-chain optimization tools. Moreover, the transition from a perpetual license model to a cloud-based subscription model in 2018 has helped the company to accommodate an increased number of clients.

MANH’s promising outlook is reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” in Industry Rank. Within the Software – Application industry, it’s ranked #10 out of 96 stocks.

SailPoint Technologies Holdings, Inc. (SAIL)

SAIL is a software company involved in offering identity management and governance from Unstructured Data Access. The company’s Predictive IdentityTM platform is powered by patented AI and ML technologies. SAIL aims at promoting adaptive security, improved business efficiency, and continuous compliance for its clients. The company has provided Identity management solutions to leading names like GE, Humana, Sanofi, ABN AMRO, and SMUD.

Recent reports suggest that the company has increased investments in disruptive technologies like AI and ML to improve its “Predictive Identity” platform and have an edge over its competitors. The latest report suggests that the global Identity and Access Management Market will expand to $24.1 billion in 2025. Meanwhile, the adoption of password management solutions by small and mid-sized enterprises is expected to increase. The global password management market is set to reach $2.05 billion by 2025, at a CAGR of 19.4%.

The revenue for the second quarter ended June 2020 surged 47% year-over-year to $92.5 million driven by its subscription and licensing revenue. The license revenue climbed 80% year-over-year, while the subscription revenue increased by 36%. SAIL also highlighted the contribution of its AI-driven identity solutions to the company’s revenue growth. The company’s EPS stood at $0.03 compared to a loss of $0.10 in the prior-year period. For the third quarter, the consensus revenue estimate is $83.6 million, while the loss per share is expected to be $0.05, indicating a 171.4% decline.

The stock has surged 102.5% year-to-date to close yesterday’s trading session at $47.81. Over the past six months, the stock has gained 183%. Due to a wider distribution of the workforce amid the COVID-19 pandemic, enterprises are ramping up cybersecurity like never before. There is increased demand for “Identity Governance” and SAIL stands at an advantageous position amid this backdrop. According to sources, SAIL would replace Sally Beauty Holdings Inc. (SBH) in the S&P MidCap 400.

SAIL’s promising outlook is reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” in Industry Rank. Within the Software – Security industry, it’s ranked #2 out of 23 stocks.

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PCTY shares were trading at $188.59 per share on Wednesday afternoon, down $0.46 (-0.24%). Year-to-date, PCTY has gained 56.09%, versus a 9.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...

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