Despite the current macroeconomic challenges, the software industry is well-positioned for long-term growth. With increasing investments in digitization, enterprises are moving to cloud-based software applications, boosting the industry’s growth.
Before delving deeper into their fundamentals, let’s discuss why the software industry is growing.
With the growing penetration of the internet, businesses across the globe are strategically enhancing their digital capabilities by utilizing public cloud services.
Unlike traditional software delivery models, cloud-based software solutions like Software-as-a-Service (SaaS) enable enterprises to efficiently manage various aspects, helping them reduce costs, improve scalability and flexibility, provide personalization, etc.
As businesses seek higher productivity, cost savings, and better customer management, the demand for such smart software solutions is rising. According to Gartner, software spending is expected to rise 13.7% year-over-year to $922.75 billion in 2023. Additionally, SaaS spending is forecasted to increase by 17.9%, reaching $197 billion this year.
Furthermore. the software-SaaS industry is expected to benefit from generative AI. Generative AI is expected to help enhance and speed up SaaS processes and build impactful products. Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 40.6% returns year-to-date.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Software – SAAS industry picks, beginning with the third choice.
Stock #3: EverCommerce Inc. (EVCM)
EVCM provides integrated software-as-a-service solutions for service-based small and medium-sized businesses in the United States and internationally. The company’s solutions include business management software that offers route-based dispatching, medical practice management, gym member management solutions, customer engagement applications, marketing technology solutions and digital lead generation.
On June 15, 2023, EVCM announced a $50 million share repurchase program, allowing the company to buy back its common shares over the next six months with the intention of maximizing shareholder value through this capital allocation strategy.
In terms of the trailing-12-month gross profit margin, EVCM’s 65.34% is 36.4% higher than the 47.89% industry average. Likewise, its 14.10% trailing-12-month levered FCF margin is 99.8% higher than the 7.06% industry average. Additionally, its 13.24% trailing-12-month EBITDA margin is 46.5% higher than the 9.04% industry average.
For the fiscal second quarter that ended June 30, 2023, EVCM’s total revenues increased 8.1% year-over-year to $170.05 million. Its adjusted gross profit increased 9.5% year-over-year to $111.87 million. The company’s net loss narrowed significantly year-over-year to $896 thousand. Additionally, its adjusted EBITDA came in at $38.80 million, representing an increase of 26.2% year-over-year.
Analysts expect EVCM’s EPS for fiscal 2023 to increase 2.4% year-over-year to $0.42. Its revenue for the quarter ending September 30, 2023, is expected to increase 11.3% year-over-year to $175.97 million. Over the past nine months, the stock has gained 65.8% to close the last trading session at $10.61.
EVCM’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 24 stocks in the B-rated Software – SAAS industry. It has an A grade for Growth and Sentiment and a B for Value and Stability. Click here to see EVCM’s Momentum and Quality ratings.
Stock #2: The Sage Group plc (SGPYY)
Based in Newcastle upon Tyne, the United Kingdom, SGPYY and its subsidiaries provide technology solutions and services for small and medium businesses in North America, Northern Europe, and internationally. It offers cloud native solutions, such as Sage Intacct, Sage People, Sage 200, Sage X3, Sage Accounting, Sage Payroll, and Sage HR.
On May 9, 2023, SGPYY announced the acquisition of Corecon, a cloud-native preconstruction and project management solution, to expand its offerings for the construction industry, allowing customers to efficiently manage projects from bid to closeout. This acquisition reinforces SGPYY’s position as a leading provider of cloud-native technology in the construction sector.
Julie Adams, VP of Product, Construction, and Real Estate at SGPYY, said, “This acquisition aligns with our drive to bring the latest cloud technology to our increasing number of construction customers. By combining our trusted financial solutions with innovative cloud preconstruction and project management capabilities, we will deliver a system that can run every part of a construction business.”
In terms of the trailing-12-month EBITDA margin, SGPYY’s 18.52% is 105% higher than the 9.04% industry average. Likewise, its 93.05% trailing-12-month gross profit margin is 94.3% higher than the 47.89% industry average. Its 16.29% trailing-12-month EBIT margin is 263.6% higher than the 4.48% industry average.
SGPYY’s underlying total revenue for six months ended March 31, 2023, increased 9.9% year-over-year to £1.09 billion ($1.38 billion). Its underlying operating profit rose 14.1% year-over-year to £227 million ($286.47 million). The company’s EBITDA increased 13.2% year-over-year to £275 million ($347.05 million). Also, its underlying basis EPS came in at 15.68p, representing an increase of 13.4% year-over-year.
For the fiscal year ending September 30, 2023, SGPYY’s revenue is expected to increase 17.5% year-over-year to $2.73 billion. Over the past year, the stock has gained 49.7% to close the last trading session at $49.23.
It’s no surprise that SGPYY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability. Within the same industry, it is ranked #7. In total, we rate SGPYY on eight different levels. Beyond what we stated above, we also have given SGPYY grades for Growth, Value, Momentum, Sentiment, and Quality. Get all the SGPYY ratings here.
Stock #1: Consensus Cloud Solutions, Inc. (CCSI)
Consensus Cloud Solutions, Inc. and its subsidiaries provide information delivery services with a software-as-a-service platform. It offers eFax Corporate, Unite, jsign, Conductor, Clarity, and eFax, and other products under the MyFax, MetroFax, Sfax, and SRfax brands. It serves the healthcare, government, financial services, law, and education industries.
On August 10, 2023, CCSI announced the launch of Clarity Clinical Documentation (Clarity CD). This solution automatically extracts and populates patient data from unstructured clinical documents into structured records, advancing the secure exchange of healthcare data and improving interoperability in the healthcare sector.
Consensus Clarity CD benefits healthcare providers by optimizing processes, increasing reliability, conserving resources, meeting regulatory requirements, and improving satisfaction.
On May 18, 2023, CCSI partnered with Hyland Software Inc. to integrate patient data using a secure eFax corporate cloud fax solution within Hyland’s OnBase app. Streamlining EHR workflows with end-to-end encryption.
John Nebergall, Chief Operating Officer at CCSI, said, “We’re able to leverage our digital cloud fax solution with Hyland’s OnBase to provide the most integrated and connected means for patient data exchange. This is vital for improving processes and increasing care coordination, ultimately leading to better and safer patient care.”
In terms of the trailing-12-month EBITDA margin, CCSI’s 44.22% is 389.3% higher than the 9.04% industry average. Likewise, its 81.98% trailing-12-month gross profit margin is 71.2% higher than the 47.89% industry average. Additionally, its 18.78% trailing-12-month net income margin is 823.5% higher than the industry average of 2.03%.
For the fiscal second quarter ended June 30, 2023, CCSI’s revenues increased 1.8% year-over-year to $92.79 million. Its non-GAAP net income came in at $26.73 million. In addition, its adjusted EPS came in at $1.36. Also, its adjusted EBITDA came in at $47.67 million.
For the quarter ending December 31, 2023, CCSI’s EPS and revenue are expected to increase 15.7% and 5.8% year-over-year to $1.31 and $95.47 million, respectively. Over the past month, the stock has gained marginally to close the last trading session at $31.50.
CCSI’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #6 in the Software – SAAS industry. To see CCSI’s Growth, Momentum, Stability, and Sentiment ratings, click here.
43 Year Investment Pro Shares Top Picks
Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…
Want More Great Investing Ideas?
SGPYY shares were trading at $49.08 per share on Tuesday morning, down $0.15 (-0.30%). Year-to-date, SGPYY has gained 39.32%, versus a 18.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|SGPYY||Get Rating||Get Rating||Get Rating|
|EVCM||Get Rating||Get Rating||Get Rating|
|CCSI||Get Rating||Get Rating||Get Rating|
|IGV||Get Rating||Get Rating||Get Rating|