The COVID-19 pandemic has accelerated the growth of the software industry as stay-at-home restrictions increased general reliance on digital platforms. An increasing use of data storage, data analytics, automation, and other cloud-based solutions by small and large enterprises has helped the software industry achieve solid growth over the past year.
The continuing adoption of cloud-based platforms and advanced technologies such as blockchain, machine learning, and artificial intelligence have been facilitating software companies’ provision of efficient services to their clients. This should keep driving the software industry’s growth. The global software market is expected to grow at a 7.2% CAGR to $823.71 billion by 2026.
Given this backdrop, we think it could be wise to bet on lesser-known software stocks SS&C Technologies Holdings, Inc. (SSNC), National Instruments Corporation (NATI), and American Software, Inc. (AMSWA) that are rated A (Strong Buy) in our proprietary POWR Ratings system. These stocks are well-positioned to outperform their bigger counterparts and the broader market.
SS&C Technologies Holdings, Inc. (SSNC)
Financial technology company SSNC operates hedge funds and mutual fund transfers. In addition, Windsor, Conn.-based company offers software-enabled services, front-to-back-office operations, performance and risk analytics, regulatory reporting, and healthcare information processes.
In August, SSNC surpassed 100 clients that depend on its Precision LM software to support their lending operations. SSNC believes that it saw this growth because banks and non-bank organizations have increased their investment portfolios’ private credit lending activities and exposure to commercial and residential loans.
Also, in August, a leading global investment manager, Ninety One, extended its long-term relationship with SSNC. SSNC will serve Ninety One’s range of OEIC funds through this transfer agency partnership and boost its growth and development.
SSNC’s total revenue for the second quarter, ended June 30, 2021, increased 10.6% year-over-year to $1.26 billion. Its gross profit increased 16.4% from its year-ago value to $595 million, while its non-GAAP operating income rose 15.3% year-over-year to $495.8 million. Also, its net income increased 12% from the prior-year quarter to $189.8 million.
Analysts expect SSNC’s revenue for its fiscal year 2021 to be $4.97 billion, representing 6.3% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to increase 11.9% in the current year. The stock has surged 13.1% in price over the past six months and 19.3% over the past year.
SSNC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a B grade for Value, Stability, and Quality. We’ve also graded SSNC for Growth, Sentiment, and Momentum. Click here to access all SSNC’s ratings. SSNC is ranked #1 of 61 stocks in the Software-Business industry.
National Instruments Corporation (NATI)
NATI operates a software-centric platform that helps engineers solve tough challenges through its automated test and measurement systems. The company provides semiconductors, transportations, electronics, energy, aerospace, defense and government, and academic and research solutions. NATI is headquartered in Austin, Tex.
In July, the company unveiled the power of test data and software at NI connect, which is designed to fuel innovation across the production process, from testing and validation to R&D and design. Through this product advancement, organizations can explore how NATI is helping engineers to get a faster, smarter, and correct test and data insights.
Also, in July, NATI and Seagate Technology Holdings collaborated to enhance data storage and transfer services, which includes a first-of-its-kind “advanced driver-assistance systems (ADAS) record offering.” This collaboration should help accelerate the product life cycle for ADAS components and autonomous vehicles.
For the second quarter, ended June 30, 2021, NATI’s total net sales increased 15.1% year-over-year to $346.69 million. The company’s gross profit increased 14.9% from its year-ago value to $247.46 million. Also, its operating income increased 49.5% from the prior-year period to $24.55 million, while its non-GAAP net income grew 38.6% year-over-year to $46.81 million.
NATI’s revenue is expected to increase 13.5% year-over-year to $1.46 billion in its fiscal year 2021. In addition, the company’s EPS is expected to increase 70.6% next year and 550% in the next quarter, ending September 30, 2021. The stock has climbed 9% in price over the past nine months and 19.4% over the past year.
NATI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has a B grade for Growth, Stability, and Quality.
American Software, Inc. (AMSWA)
AMSWA provides demand-driven supply chain management and enterprise software solutions. The Atlanta, Ga., company also develops, markets, and supports a portfolio of software and services that deliver enterprise management and collaborative supply chain solutions to the global marketplace. Supply Chain Management (SCM); Enterprise Resource Planning (ERP); and Information Technology (IT) Consulting are the three business segments through which the company works.
In August, an AI-based supply chain planning solution, under the parent organization AMSWA, Logility, was recognized as a highly valued supplier by SupplyChainBrain, for the 16th year in a row, as one of the 100 Great Supply Chain Partners in 2021. Logility provides outstanding solutions and services to its customers and helps to improve their supply chain performance and efficiency.
AMSWA’s total revenue increased 7.3% year-over-year to $29.27 million for its fiscal first quarter, ended July 31, 2021. Its subscription fees rose 54% year-over-year to $9.8 million, while its adjusted EBITDA grew 18% from the year-ago value to $3.7 million. The company’s operating earnings increased 100.3% from its year-ago value to $1.77 million. Also, its net earnings increased 44.9% from the prior-year quarter to $2.95 million.
For its fiscal year 2022, analysts expect AMSWA’s revenue to increase 9% year-over-year to $121.46 million. AMSWA has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to increase 23.3% next year. The stock has gained 59.5% in price over the past nine months and 85.9% over the past year.
It’s no surprise that AMSWA has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Sentiment, and a B grade for Growth and Quality.
Click here to see the additional POWR Ratings for AMSWA (Value, Stability, and Momentum). AMSWA is ranked #3 in the Software-Application industry.
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SSNC shares were trading at $73.37 per share on Tuesday morning, down $0.63 (-0.85%). Year-to-date, SSNC has gained 1.52%, versus a 21.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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