SolarWinds Corporation (SWI), a leading provider of simple, powerful, secure observability and IT management software, reported solid third-quarter financial results for fiscal 2024. The company reported a record quarterly revenue of $200.03 million, surpassing analysts’ estimate of $194.03 million. Also, its EPS of $0.27 exceeded the analysts’ expectation of $0.25.

In the business software segment, SWI continues to maintain its competitive edge with innovative solutions, targeting specific customer requirements and spreading awareness of current market dynamics. The company’s strong financial standing further reflects improvement in its underlying business.

During the third quarter, SolarWinds received global recognition for its powerful IT management solutions and industry excellence, including The Globee® Cybersecurity Awards, the 2024 BIG Innovation Awards, CRN’s 2024 Channel Chiefs, and multiple Stevie® Awards for innovation. Also, it was named a leader in the 2024 GigaOm Radar Reports for Network and Cloud Observability.

Further, recently, SWI expanded its capabilities across its SolarWinds Observability Self-Hosted and SolarWinds Observability SaaS offerings. It includes expanded cloud monitoring capabilities, new AI and AIOps-driven capabilities, and network device support. The innovation could further expand the company’s operations and profitability.

Besides, business needs are changing at a rapid pace. Organizations are increasingly adopting digitalization, encouraging technological advancements in the cloud, and moving to integrate multichannel touchpoints into a single platform, which is driving the business software market.

The business software market is estimated at $720 billion in 2025 and is projected to reach $1.23 trillion by 2030 at a CAGR of 11.2%. SolarWinds, operating at the frontline of the segment, stands to capitalize on the industry’s propelling trends.

SWI is growing its operations and size through useful products and solutions, as reflected in its financial results and stock performance. Shares of SWI surged 19.3% over the past six months and 20.8% over the past year to close its last trading session at $14.18.

Let’s look at factors that could influence SWI’s performance in the upcoming months.

Positive Recent Developments

On October 2, SWI launched the next generation of SolarWinds® Observability, available in self-hosted or SaaS options. Through the introduction, the company expanded its network, infrastructure, and cloud observability capabilities, providing customers with better value and uncompromising flexibility in deployment.

SWI’s enhancements offer broader on-premises infrastructure monitoring, expanded cloud infrastructure observability, and enhanced artificial intelligence and machine learning (AI/ML) capabilities.

Robust Financials

SWI’s total revenue increased 5.5% year-over-year to $200.03 million during the third quarter that ended September 30, 2024. Its non-GAAP gross profit grew 5.1% from the year-ago value to $180.96 million. The company’s non-GAAP operating income of $88.71 million indicates growth of 9.3% from the prior year’s quarter.

In addition, the company’s non-GAAP net income and EPS came in at $46.86 million and $0.27, reflecting increases of 23.3% and 17.4% year-over-year, respectively. Its adjusted EBITDA was $96.04 million in the quarter, up 12.9% over the prior year’s quarter.

Also, the company’s cash and cash equivalents and total assets stood at $193.02 million and $3.12 billion as of September 30, 2024.

Favorable Analyst Estimates

Analysts expect SWI’s revenue for the fourth quarter (ended December 2024) to increase 2.4% year-over-year to $202.91 million. The consensus EPS estimate of $0.27 for the same quarter indicates a 13.5% year-over-year improvement. Moreover, SWI has an impressive earnings surprise history, having topped consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year that ended December 2024, the company’s revenue is expected to grow 4% year-over-year to $789.41 million. Its EPS is projected to increase 24% year-over-year to $1.09 for the same year.

Low Valuation

In terms of forward non-GAAP P/E, SWI is currently trading at 13x, 49.5% lower than the industry average of 25.74x. Likewise, the stock’s forward EV/EBITDA and Price/Sales of 9.22x and 3.06x are considerably lower than the industry average of 15.68x and 3.35x, respectively.

Additionally, the stock’s forward Price/Book and Price/Cash Flow of 1.74x and 10.74x are 60.3% and 49.5% lower than the industry averages of 4.38x and 21.29x, respectively.

High Profitability

SWI’s trailing-12-month EBIT margin of 26.31% is 389.9% higher than the industry average of 5.37%. Its trailing-12-month net income margin of 4.93% is 29.2% higher than the industry average of 3.81%. Similarly, its trailing-12-month ROTC of 4.88% is 56.1% higher than the industry average of 3.13%.

Furthermore, the stock’s trailing-12-month levered FCF margin and gross profit margin of 28.33% and 90.43% favorably compared to the industry averages of 11.31% and 50.74%, respectively.

POWR Ratings Reflect Promise

SWI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SWI has a B grade for Value and Sentiment, which is in sync with its low valuation and promising analysts’ estimates.

In addition, the stock has earned a B grade for Stability, justified by its 5-year beta of 0.95.

Notably, SWI has topped among the 40-stock B-rated Software – Business industry.

Beyond what we have stated above, we have also given SWI grades for Growth, Momentum, and Quality. Get access to all the SWI Ratings here.

Bottom Line

SWI reported better-than-expected earnings for the third quarter of fiscal 2024. The company’s dominant industry position, strategic initiatives, and solid financial performance position it for robust long-term prospects. The company is making strong strides to outshine its industry peers and widen its market scope.

Given SWI’s solid financials, accelerating profitability, and promising growth outlook, this stock could be an ideal buy now.

How Does SolarWinds Corporation (SWI) Stack Up Against Its Peers?

While SWI has an overall POWR Rating of A, investors could also check out these other stocks within the B-rated Software – Business industry with A (Strong Buy) or B (Buy) ratings: FARO Technologies, Inc. (FARO), RingCentral Inc. Cl A (RNG), and VMware Inc. (VMW).

For exploring more A and B-rated software stocks, click here.

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SWI shares were trading at $14.09 per share on Tuesday afternoon, down $0.09 (-0.63%). Year-to-date, SWI has declined -1.12%, versus a 0.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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