The software industry played a leading role in powering the stock market’s gains last year. But now, traders and investors are unnerved by indications of higher inflation and are moving away from expensive software stocks in fear of losses in the near term. The opportunity to capitalize on the economic recovery by betting on cheap cyclical stocks is another reason why software stocks have been retreating lately. This is evidenced by the Invesco Dynamic Software ETF’s (PSJ) 5.7%% loss over the past three months, compared to S&P 500’s (SPY) 10.2% gains.
Because most aspects of people’s lives and organizations’ operations are now being digitized, the demand for software should continue to increase. With more organizations adopting cloud applications and products that could help their employees collaborate from afar and access data that are stored in remote data centers, there will likely be a substantial rise in IT spending going forward. Indeed, the global enterprise software market is expected to grow at an 8% CAGR to reach $634 billion by the end of 2023.
This bodes well for software stocks that are trading at reasonable prices now. Based on strong financials, we think Progress Software Corporation (PRGS), NetSol Technologies, Inc. (NTWK), and Evolving Systems, Inc. (EVOL) are primed to deliver handsome returns.
Progress Software Corporation (PRGS)
PRGS delivers products to develop, deploy and manage high-impact business applications. The company operates through three segments: OpenEdge, Data Connectivity and Integration, and Application Development and Deployment. It also provides project management, implementation, custom development, programming, and other services.
This month, PRGS released its Progress MOVEit 2021, an automated managed file transfer (MFT) software that can be deployed both on-premises and in the cloud and should make it easier for users to safely transfer data and collaborate with each other. The software’s introduction could help PRGS grow because it should help customers keep their critical information safe and develop trust in PRGS.
In the first quarter, ended 28th February 2021, PRGS’ revenue has increased 15.8% year-over-year to $131.78 million, while its non-GAAP income from operations increased 18.1% from its year-ago value to $56.66 million. The company’s non-GAAP net income increased 22.5% year-over-year to $42.05 million. It reported $0.95 in EPS, compared to EPS of $0.76 in the prior-year quarter.
Analysts expect PRGS’ revenue for the current year to be $525.63 million, representing 15.2% year-over-year growth. The company’s EPS is likely to increase 14.3% year-over-year to $0.72 in the current quarter. PRGS’ stock has gained 13.4% over the past year and closed yesterday’s trading session at $44.61.
It is no surprise that PRGS has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Value and Quality, and a B for Sentiment. In the Software – Application industry, it is ranked #4 of 124 stocks.
In total, we rate PRGS on eight different levels. Beyond what we’ve stated above, we have also given PRGS grades for Momentum, Growth and Stability. Get all the PRGS ratings here.
NetSol Technologies, Inc. (NTWK)
Founded in 1997, NTWK is a global business services and enterprise application solutions provider to the asset finance and leasing industry. It is the first organization to introduce digital transformation and launch a complete line of digital solutions. Further, the company provides system integration, consulting, and IT products and services.
This month, NTWK was selected by Monitor Daily in its inaugural special feature—‘Most Innovative Companies in the Equipment Finance Ecosystem’—in the ‘Sustaining’ category. This feature will increase NTWK’s credibility in the market and will help increase its user base.
In the third quarter, ended March 31, 2021, NTWK’s revenue increased 1.8% year-over-year to $13.78 million, while its gross profit increased 6.8% from its year-ago value to $6.42 million. It reported $462,220 in income from operations over the period. Moreover, the company’s cash and cash equivalents increased 94.4% year-over-year to $30.6 million.
Analysts expect NTWK’s revenue for the current year to be $59.7 million, representing 5.9% year-over-year growth. The company’s EPS is likely to increase 28% year-over-year over the next five years. Over the past year, NTWK has gained 43.9%. It closed yesterday’s trading session at $4.56.
It is no surprise that NTWK has an overall B grade, which equates to Buy in our proprietary ratings system. It has an A grade for Value and a grade of B for Momentum and Sentiment. In the Software – Application industry, it is ranked #18.
Click here to see the additional POWR Ratings for NTWK (Growth, Stability and Quality).
Evolving Systems, Inc. (EVOL)
EVOL empowers communications service providers (CSPs) to succeed in fast-changing, disruptive telecom environments. The company’s portfolio includes CSP market-leading solutions and services for network provisioning and resource management that enhance digital sales and distribution channels, service activation, and more. Its real-time digital engagement solutions and services are used by more than 90 service providers in more than 60 countries worldwide.
During the first quarter ended March 31, 2021, EVOL’s net revenue increased 2.8% year-over-year to $6.5 million. Its services revenue increased 3.4% year-over-year to $6.3 million, while its cash and cash equivalents increased 55.3% year-over-year to $4.3 million.
EVOL’s EPS is expected to grow at the 15% rate per annum over the next five years. Over the past year, EVOL’s stock has gained 89.4%. The stock closed yesterday’s trading session at $1.88.
EVOL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. EVOL has an A grade for Value and Quality. In the same industry, it is ranked #17.
Click here to see the additional POWR Ratings for EVOL (Momentum, Growth, Sentiment and Stability).
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PRGS shares were trading at $45.43 per share on Thursday morning, up $0.82 (+1.84%). Year-to-date, PRGS has gained 0.93%, versus a 12.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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