Coupled with swift digital transformation within corporations, the software industry is poised to remain resilient in the upcoming years, attributed primarily to rising investments in cloud-based technologies.

Given this backdrop, fundamentally robust software stocks Weave Communications, Inc. (WEAV), Red Violet, Inc. (RDVT), and Intellicheck, Inc. (IDN) could be wise portfolio additions this month.

In today’s digital world, software is like the backbone of every business, making things run smoother and faster. Companies are investing more in digital upgrades to boost productivity and cut costs. Gartner (IT) predicts that worldwide IT spending could reach $5.06 trillion in 2024, marking an 8% year-over-year growth, which is expected to exceed $8 trillion by 2030.

Emerging technologies like artificial intelligence, machine learning, VR, AR, and blockchain have aided the software industry in transforming digitally, meeting consumers’ ever-changing demands, and finding new innovative solutions.

The global application development software market, estimated to reach $733.50 billion by 2028, growing at a CAGR of 24.3%, is driven by the rising demand for IoT and cloud-based solutions to streamline business operations. The need for scalable and customized software further fuels this growth.

With these favorable trends in mind, let’s delve into the fundamentals of the three software stock picks.

Weave Communications, Inc. (WEAV)

WEAV provides a customer experience and payments software platform for small and medium-sized businesses in the U.S. and Canada.

On April 15, WEAV announced an integration with Shepherd, an intuitive cloud-based veterinary practice management software. This integration allows healthcare providers to better manage their business through automation and optimization of tasks.

On April 3, WEAV announced a new level of integration with DrChrono by EverHealth, a leading electronic health record provider for medical practices. The updated integration allows healthcare providers to better manage their business through automation and optimization of tasks.

WEAV’s trailing-12-month asset turnover ratio of 0.83x is 36.5% higher than the industry average of 0.61x. Its trailing-12-month gross profit and levered FCF margins of 68.10% and 19.96% are 39.1% and 116.9% higher than the industry averages of 48.95% and 9.20%, respectively.

For the fiscal fourth quarter that ended December 31, 2023, WEAV’s revenue and non-GAAP gross profit stood at $45.69 million and $31.83 million, up 21.2% and 26.6% year-over-year, respectively. Moreover, its free cash flow came to $2.94 million, compared to a free cash flow of negative $3.77 million in the prior-year quarter.

As of December 31, 2023, WEAV’s short-term investments amounted to $58.09 million, compared to $51.34 million as of December 31, 2022.

Street expects WEAV’s revenue for the fiscal second quarter ending June 2024 to increase 15.7% year-over-year to $48.21 million. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 140.3% over the past year to close the last trading session at $10.98. Over the past six months, it has gained 51%.

WEAV’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to 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 Growth, Sentiment, and Quality. It is ranked #34 out of 199 stocks within the Software – Application industry.

Click here for the additional POWR Ratings for WEAV (Value, Momentum, and Stability).

Red Violet, Inc. (RDVT)

RDVT specializes in proprietary technologies and applying analytical capabilities to deliver identity intelligence in the U.S.

The board of directors authorized the repurchase of $5 million of the company’s common stock on December 19, 2023. During the fiscal fourth quarter that ended December 31, 2023, the company purchased 125,703 shares at an average price of $19.89 per share pursuant to the stock repurchase program.

Since inception in May 2022, through February 29, 2024, the company purchased 289,340 shares at an average price of $18.73 per share. As of March 1, 2024, the company had approximately $4.60 million remaining under the stock repurchase program.

RDVT’s trailing-12-month asset turnover ratio of 0.71x is 15.8% higher than the industry average of 0.61x. Its trailing-12-month gross profit and net income margins of 78.29% and 22.47% are 60% and 722.9% higher than the industry averages of 48.95% and 2.73%, respectively.

For the fiscal fourth quarter that ended December 31, 2023, RDVT’s revenue and adjusted gross profit stood at $185.38 million and $11.72 million, up 58.5% and 17.1% year-over-year, respectively. For the same quarter, its adjusted net income and adjusted earnings per share increased 157.1% and 100% from the prior-year quarter to $270 thousand and $0.02, respectively.

Street expects RDVT’s revenue and EPS for the fiscal second quarter ending June 2024 to be $16.70 million and $0.16, respectively.

The stock has gained 10.5% over the past year to close the last trading session at $17.87.

RDVT’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.

RDVT has a B grade for Growth and Stability. Within the Software – Business industry, it is ranked #9 out of 44 stocks.

To see additional POWR Ratings for Value, Momentum, Sentiment, and Quality for RDVT, click here.

Intellicheck, Inc. (IDN)

IDN provides on-demand digital identity validation solutions for KYC, fraud, and age verification needs in North America. 

On April 16, IDN and the city of Clemson launched a new pilot program to tackle the problem of underage drinking. The 12-month pilot will allow 15 area bars, convenience stores, and liquor stores to use IDN’s state-of-the-art identity verification mobile technology application. IDN’s ID verification technology has proven to be extremely effective in authenticating IDs in under a second using existing mobile devices or point-of-sale scanners.

IDN’s trailing-12-month asset turnover ratio of 0.82x is 34% higher than the industry average of 0.61x. Similarly, its trailing-12-month gross profit margin of 92.73% is 89.4% higher than the industry average of 48.95%.

For the fiscal fourth quarter that ended December 31, 2023, IDN’s revenues stood at $5.18 million, up 13.7% year-over-year, while gross margin as a percentage of revenues was 94.9%. Its adjusted EBITDA increased 200.5% from the prior-year quarter to $1.17 million.

Moreover, its net income for the quarter improved to $757 thousand or $0.04 per share compared to net loss of $869 thousand or $0.05 per  share for the year ago quarter. As of December 31, 2023, IDN’s total current assets amounted to $14.38 million, compared to $13.32 million as of December 31, 2022.

Street expects IDN’s revenue for the fiscal year ending December 2024 to increase 13.8% year-over-year to $21.51 million, while EPS is expected to increase significantly year-over-year to $0.06.

The stock has gained 56.4% over the past month to close the last trading session at $2.80. Over the past three months, it has gained 52.2%.

IDN’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates Buy in our proprietary rating system.

IDN has a B grade for Quality. Within the Software – Application industry, it is ranked #32.

For IDN’s ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.

What To Do Next?

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WEAV shares were unchanged in premarket trading Friday. Year-to-date, WEAV has declined -4.27%, versus a 5.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Neha Panjwani

From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance. More...

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