Tech giants have reported impressive earnings growth in the last quarter, owing to surging demand for its products amid a continued hybrid working environment and rapid tech integration in virtually every industry. However, factors like high inflation, the rapid spread of the highly infectious omicron variant, weak job growth reports for November, and the Federal Reserve’s tightening monetary policy made the markets witness a sell-off last Friday, with the tech-heavy Nasdaq Composite losing 1.9%.

As these factors could keep the market under pressure in the near term, it is wise to bet on fundamentally-sound software stocks to hedge investors’ portfolios from an anticipated market correction, given its long-term growth prospects. Also, growing interest in AI, machine learning, cryptocurrencies, fintech, data analytics, and AR/VR should foster its growth. The global software market is expected to grow at a 7.2% CAGR to $823.71 billion by 2026.

Fundamentally-sound software stocks SS&C Technologies Holdings, Inc. (SSNC), Open Text Corporation (OTEX), Progress Software Corporation (PRGS), and Mitek Systems, Inc. (MITK) have the potential to cash in on the industry tailwinds and deliver solid returns in the near term.

SS&C Technologies Holdings, Inc. (SSNC)

SSNC develops and delivers software solutions to financial services and healthcare industries. The company owns and operates technology stacks across securities accounting, front-to-back-office operations, performance and risk analytics, regulatory reporting, and healthcare information processes. It also provides professional services, including consulting and implementation services and product support services to assist clients.

On December 1, 2021, SSNC’s Bolt Bidco Limited subsidiary announced its recommended cash offer to acquire Blue Prism Group plc, a leading robotics process automation (RPA) company in the UK, for 1,275 pence per share, implying an equity value of approximately £1.24 billion ($1.65 billion). Following the acquisition, SSNC plans to integrate Blue Prism business with its intelligent automation platform, SS&C Chorus. Combining Blue Prism’s market-leading RPA solutions and SSNC’s top position in the financial services and healthcare industries will generate significant growth opportunities.

For its fiscal third quarter, ended September 30, 2021, SSNC’s total adjusted revenues increased 9.5% year-over-year to $1.27 billion. The company’s gross profit came in at $624 million, indicating a 19.1% rise from the prior-year period. Its adjusted operating income came in at $524.10 million for the quarter, representing a 16.8% year-over-year improvement. SSNC’s adjusted net income came in at $352.90 million, up 20% from the year-ago period. Its EPS increased 20% year-over-year to $0.74. The company had $351.10 million in cash and cash equivalents as of September 30, 2021.

Analysts expect the stock’s EPS to increase 15.6% year-over-year to $4.97 in the current year. The consensus revenue estimate of $5.02 billion for the current year represents a 7.2% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. AMKR’s EPS is expected to grow at a rate of 3% per annum over the next five years.

Over the past nine months, the stock has gained 14.7% and closed yesterday’s trading session at $76.51. SSNC’s 15.04x non-GAAP forward P/E is 37.4% lower than the 24.04x industry average. In terms of forward EV/EBITDA, SSNC is currently trading at 12.27x, 22% lower than the industry average of 15.72x.

SSNC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value, Growth, Momentum, Stability, and Quality. Click here to see the additional ratings for SSNC’s Sentiment. Of the 59 stocks in the Software – Business industry, SSNC is ranked #3.

Open Text Corporation (OTEX)

Based in Canada, OTEX designs, develops, and sells information management software and solutions. The company’s Information Management solutions delivered at scale in the OpenText Cloud helps organizations optimize their digital supply chains. Its Content Services solutions range from content collaboration and intelligent capture to records management and archiving. It serves organizations, enterprise and mid-market companies, public sector agencies, small and medium-sized businesses, and direct consumers internationally.

On November 24, 2021, OTEX announced the addition of next-generation Network Detection & Response (NDR) technology to its OpenText Security and Protection Cloud through the acquisition of Bricata, a security software developer. Amid increasing cyberattacks worldwide, Bricata’s provision of NDR security technologies will help OPEX analyze network traffic for vulnerabilities and threats and reduce false-positive security alerts. OTEX is looking forward to providing a better customer experience and helping build future products in the growing NDR market.

For its fiscal first quarter, ended September 30, 2021, OTEX’s total revenues increased 3.5% year-over-year to $832.31 million. The company’s gross profit came in at $574.19 million, up 3.4% from the prior-year period. It had $1.74 billion in cash and equivalents as of September 30, 2021.

The consensus EPS estimate of $4.38 for the current year represents a 3.5% rise from the prior-year period. Analysts expect OTEX’s revenue to improve 4.3% year-over-year to $4.41 billion for the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a 9.3% rate per annum over the next five years.

The stock has gained 4.9% over the past nine months and ended yesterday’s trading session at $47.53. OTEX’s 13.63x non-GAAP forward P/E is 43.3% lower than the 24.04x industry average. In terms of forward EV/EBITDA, OTEX is currently trading at 11.20x, 28.8% lower than the industry average of 15.72x.

It is no surprise that OTEX has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Value, Growth, Stability, Sentiment, and Quality. Click here to see the additional ratings for OTEX’s Momentum.

OTEX is ranked #1 of 169 stocks in the Software – Application industry.

Progress Software Corporation (PRGS)

PRGS develops and markets business applications for rapid application development, broad data integration, and efficient data analysis. The company sells its products to end-users, independent software vendors, OEMs, and system integrators.

On November 1, 2021, PRGS completed the acquisition of Kemp, Inc., a leader in the load balancer and application delivery controller (ADC) market, for $258 million in cash. Combining PRGS’ Application Experience Management (AX) and Kemp’s capabilities in balancing traffic and workloads across servers in the cloud or on-premises should enable it to offer the best application experience solution in the market.

PRGS’ non-GAAP revenues for its fiscal third quarter, ended August 31, 2021, increased 37.6% year-over-year to $152.60 million. The company’s non-GAAP operating income came in at $71.16 million, up 51% from the prior-year period. Its non-GAAP net income came in at $52.58 million for the quarter, representing a 47.7% year-over-year improvement. Its non-GAAP EPS increased 51.3% year-over-year to $1.18. The company had $379.90 million in cash and cash equivalents as of August 31, 2021.

Analysts expect the stock’s EPS to grow 19.7% year-over-year to $3.70 in the current year. The consensus revenue estimate of $550.46 million for the current year represents a 20.7% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. Analysts expect the stock’s EPS to grow at a rate of 2% per annum over the next five years.

Over the past year, the stock has gained 11.1% and closed yesterday’s trading session at $48.45. In terms of non-GAAP forward P/E, PRGS’ 13.22x is 45% lower than the 24.04x industry average. In terms of forward EV/EBITDA, PRGS is currently trading at 8.56x, 45.6% lower than the industry average of 15.72x.

PRGS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The stock has an A grade for Quality and a B grade for Growth and Value. Click here to see the additional ratings for PRGS (Stability, Sentiment, and Momentum).

PRGS is ranked #3 in the Software – Application industry.

Mitek Systems, Inc. (MITK)

Engaged in computer vision, AI, and machine learning, MITK develops and sells mobile image capture and digital identity verification solutions internationally. The company’s solutions are embedded in native mobile apps and browsers to facilitate online user experiences, fraud detection and reduction, and compliant transactions. It serves banks, credit unions, lenders, payments processors, card issuers, fintech companies, and others through direct sales teams and channel partners.

On November 2, 2021, MITK’s ID R&D company announced the availability of IDVoice in the latest version of the Vivoka Voice Development Kit (VDK). Combining Vivoka’s user-friendly, graphical interface and ID R&D voice, biometric anti-spoofing removes complexity and helps detect attacks that use recorded or synthesized speech, and helps developers build a powerful, modern voice application. The company expects to benefit from the growing demand in the voice biometrics markets.

MITK’s total revenue for its fiscal fourth quarter, ended September 30, 2021, increased 8.6% year-over-year to $33.27 million. The company had $30.31 million in cash and cash equivalents as of September 30, 2021.

Analysts expect MITK’s EPS to rise 17.1% year-over-year to $0.89 in the current year. The consensus revenue estimate of $138.20 million for the current year represents a 15.4% rise from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters. MITK’s EPS is expected to grow at a rate of 15% per annum over the next five years.

Over the past nine months, the stock has gained 14.3% and ended yesterday’s trading session at $17.07. MITK’s 18.64x non-GAAP forward P/E is 22.5% lower than the 24.04x industry average. In terms of trailing-12-month Price/Book, MITK is currently trading at 3.79x, 13.3% lower than the industry average of 4.37x.

MITK’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system. MITK has a B grade for Growth, Value, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for MITK’s Stability, Momentum, and Sentiment here.

MITK is ranked #25 in the Software – Application industry.

SSNC shares were trading at $78.45 per share on Tuesday afternoon, up $1.94 (+2.54%). Year-to-date, SSNC has gained 8.83%, versus a 26.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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