The Software-as-a-Service (SaaS) industry is expected to continue playing a significant role in the increasingly digital and data-driven economies. The continuation of hybrid-working culture across the globe should boost the industry’s growth.

Since SaaS applications run in the cloud and can be accessed across devices and platforms, enterprises continue to adopt cloud-based services for better efficiency and convenience. Its flexibility is further enhanced by a subscription-based or usage-based pricing strategy that minimizes or eliminates upfront costs for customers.

Hence, SaaS is increasingly used for forecasting, analysis, and delivery functions in various applications such as conferencing, salesforce automation, customer relationship management (CRM), web content management, and others. According to a report by Fortune Business Insights, the global SaaS market size is projected to reach $716.52 billion in 2028, growing at a CAGR of 27.5%.

While most technology stocks have been hit hard lately due to concerns over rising borrowing costs, fundamentally strong SaaS stocks Informatica Inc. (INFA) and Park City Group, Inc. (PCYG) could be ideal investments to capitalize on the industry’s long-term growth prospects.

However, another SaaS stock, Palantir Technologies Inc. (PLTR), might be best avoided now, given its fundamental weakness.

Stocks to Buy

Informatica Inc. (INFA)

INFA operates as an enterprise cloud data management company. It connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale through Informatica Intelligent Data Management Cloud (IDMC), its artificial intelligence-powered end-to-end data management platform.

On November 8, INFA announced that it was expanding its SAAS version of Master Data Management in Asia with Microsoft Azure. With this version, consumers can manage and create a single centralized view of their data, which would eventually serve them in increasing profitability and productivity. This expansion is expected to impact the company’s topline positively by delivering additional value.

For the third quarter of fiscal 2022 ended September 30, INFA’s revenue and gross profit increased 2.8% and 1.3% year-over-year to $371.95 million and $284.76 million, respectively. During the same period, the company’s non-GAAP net income came in at $52.61 million, or $0.18 per share.

Analysts expect INFA’s revenue to increase 9.4% year-over-year to $1.65 billion during the fiscal ending December 2023. During the same period, the company’s EPS is expected to increase 9.1% year-over-year to $0.83. The company has also impressed by surpassing EPS estimates in three of the trailing four quarters.

The stock has dipped 7.6% over the past month to close the last trading session at $17.43.

INFA has an overall rating of B, translating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

INFA has grade B for Sentiment. It is ranked #2 of 27 stocks in the Software-Saas industry.

Additional POWR Ratings for INFA’s Growth, Stability, Value, Momentum, and Quality can be found here.

Park City Group, Inc. (PCYG)

PCYG is a SAAS (Software As A Service) provider that addresses supply chain, e-commerce, food safety, and compliance activities through its services and cloud-based applications.

The company’s services consist of three application suites: ReposiTrak MarketPlace (MarketPlace); ReposiTrak Compliance and Food Safety (Compliance and Food Safety) solutions; and ReposiTrak’s Supply Chain (Supply Chain) solution.

On November 8, the Food and Drug Administration announced the finalization of the Food Safety Modernization Act Section 204 (FSMA 204) and sent the final rule to the Office of the Federal Register to be published. This marks the beginning of a tech-enabled transition which is intended to improve the world food supply chain drastically.

ReposiTrak, the largest network of connected suppliers through its supply chain, food safety, and supplier management technology solutions, welcomed this announcement. It has already garnered necessary industry support, being named the exclusive traceability partner of the National Grocers Association for its low-cost, easy-to-adopt solution.

PCYG’s total revenue for the fiscal 2023 first quarter ended September 30, increased 3.5% year-over-year to $4.72 million. During the same period, the company’s income from operations increased 5.3% year-over-year to $1.23 million, while its net income increased 35.7% year-over-year to $1.29 million. As a result, the quarterly EPS increased 50% year-over-year to $0.06.

Analysts expect PCYG’s revenue and EPS for fiscal 2023 to increase 8% and 30.4% year-over-year to $19.50 million and $0.28, respectively. The company has surpassed consensus EPS estimates in three of the trailing four quarters.

The stock has gained 1.6% over the past month to close the last trading session at $5.13.

PCYG has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Sentiment.   

Unsurprisingly, PCYG tops the list of 27 stocks in the Software – SAAS industry.

Click here for additional ratings for PCYG’s Growth, Stability, Value, and Momentum.

Stock to Avoid:

Palantir Technologies Inc. (PLTR)

PLTR deploys and builds software platforms that help organizations integrate their data, operations and decisions at scale. The company operates through two segments: Government and Commercial.

For the third quarter of the fiscal ended September 30, PLTR’s adjusted income from operations decreased 30% year-over-year to $81.25 million, while its adjusted EBITDA also decreased 26.8% year-over-year to $87.19 million.

During the same period, the PLTR’s adjusted net income attributable to common shareholders came in at $16.08 million or $0.01 per share, down 80.4% and 75% year-over-year, respectively.

Analysts expect PLTR’s EPS for the fiscal ending December 2022 to decline 65.4% year-over-year to only $0.05. Moreover, the company has missed consensus EPS estimates in each of the trailing four quarters.

The stock has plummeted 9.7% over the past month and 60.2% year-to-date to close the last trading session at $7.37.

PLTR’s poor outlook is reflected in its overall rating of D, which translates to a Sell in our POWR Ratings system. It has a grade of F for Sentiment and D for Value and Stability.

PLTR is ranked #21 in the same industry. Click here for additional POWR ratings for Growth, Momentum, and Quality for PLTR.

PLTR shares were trading at $7.28 per share on Friday afternoon, down $0.09 (-1.22%). Year-to-date, PLTR has declined -60.02%, versus a -14.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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