The software industry is exhibiting remarkable growth amid rapid advancements and the adoption of emerging technologies. Therefore, investors could buy up quality software stocks: EverCommerce Inc. (EVCM), DocuSign, Inc. (DOCU) and MiX Telematics Limited (MIXT), which can boost your portfolio this week. But before we dive deeper into the fundamentals of these stocks, let's take a look at the industry landscape.
Enterprises are increasingly adopting hybrid and public cloud solutions to enhance operations. As a result, Software as a Service (SaaS) is becoming increasingly embedded in enterprise applications in the cloud computing landscape.
According to Gartner’s projections, global software spending is expected to experience a year-on-year growth of 13.7% in 2023, reaching a total of $922.75 billion. Furthermore, the forecast for 2024 suggests that global software spending will surge to $1.05 trillion, reflecting a 14.1% year-over-year increase.
Artificial Intelligence (AI) has changed the landscape for many industries across the globe. Increasing demand for enhanced business IoT solutions, autonomous vehicles, and robotics is poised to fuel the expansion of the artificial intelligence software market.
The AI software market is expected to reach approximately $1.09 trillion by 2032, at a projected CAGR of 23%.
The increasing need for network security and privacy protection further fuels the market’s expansion. The global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030.
As per a report by Fortune Business Insights, the global SaaS market is projected to grow to $908.21 billion by 2030, exhibiting an 18.7% CAGR.
Now that we have taken a look at the bright prospects of the Software – SAAS industry let’s discuss the fundamentals of all the stocks listed above, starting with the third one.
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.
EVCM’s trailing-12-month gross profit margin of 65.34% is 32.6% higher than the industry average of 49.27%, while its EBITDA margin of 13.24% is 44.4% higher than the industry average of 9.17%.
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, while its operating income came in at $1.78 million, showing a substantial increase from previous year value. Additionally, its adjusted EBITDA came in at $38.80 million, representing an increase of 26.2% from prior year quarter.
The consensus revenue estimate of 688.84 million for the year ending December 2023 represents a 11% increase year-over-year. Its EPS is expected to grow 5.5% year-over-year to $0.43 for the same period.
EVCM’s shares have gained 34.5% year-to-date and 27.7% over the past year to close the last trading session at $10.01.
EVCM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EVCM also has an A grade for Growth and a B for Stability and Sentiment. It is ranked #6 out of 22 stocks in the B-rated Software – SAAS industry. Click here for the additional POWR Ratings for Value, Momentum, and Quality for EVCM.
Stock #2: DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions in the United States and internationally. The company offers a DocuSign e-signature solution that enables sending and signing agreements on various devices.
DOCU’s trailing-12-month gross profit margin and EBIT margin of 79.46% and 6.65% are 61.3% and 35.4% higher than the industry averages of 49.27% and 4.91%, respectively.
DOCU’s total revenue rose 10.5% year-over-year to $687.69 million in the second quarter of 2024 that ended July 31, 2023. Its non-GAAP gross profit increased 11.3% from the prior-year quarter to $565.79 million. Moreover, its non-GAAP net income rose 66% year-over-year to $149.62 million. The company’s non-GAAP net income per share came in at $0.72, representing an increase of 63.6% year-over-year.
Street expects DOCU’s EPS and revenues to increase 11% and 6.9% year-over-year to $0.63 and $690.18 million, respectively, in the fiscal third quarter ending October 2023. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
Shares of DOCU increased 1.2% intraday to close the last trading session at $40.54.
DOCU’s POWR Ratings reflect robust prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value and Quality. DOCU is ranked #3 in the same industry.
To access DOCU’s Momentum, Stability, and Sentiment ratings, click here.
Stock #1: MiX Telematics Limited (MIXT)
MIXT and its subsidiaries provide fleet and mobile asset management solutions through a software-as-a-service (SaaS) delivery model. Its offers include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
MIXT’s trailing-12-month ROCE and ROTC of 4.9% and 7.63% are 324.1% and 212.4% higher than the industry averages of 1.16% and 2.44%, respectively.
On October 10, PowerFleet and MIXT announced that they are merging to create a global leader in the mobile asset IoT industry with substantial SaaS revenue and a subscriber base of 1.7 million. This move is expected to significantly impact MIXT’s business, providing enhanced market presence, shareholder value, and growth opportunities in the mobile asset IoT sector.
For the fiscal first quarter of 2024 ended June 30, 2023, MIXT’s total revenues increased 3.7% year-over-year to $36.35 million. Its gross profit increased 6.3% over the prior-year quarter to $23.11 million. Net income attributable to MIXT increased 137.2% year-over-year to $1.61 million. In addition, its EPS came in at $0.003, representing an increase of 200% year-over-year. Also, its adjusted EBITDA increased 44.3% year-over-year to $8.66 million.
Street expects MIXT’s revenue to increase 2.4 % year-over-year to $148.17 million for the year ending March 2024. Its EPS is expected to grow at 58.4% year-over-year to $0.57 for the same period.
Shares of MIXT has lost 2.4% intraday to close the last trading session at $5.40.
MIXT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first in the Software – SAAS industry. It has an A grade for Value and a B for Growth. To see additional MIXT’s ratings for Momentum, Stability, Sentiment, and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DOCU shares were trading at $39.64 per share on Wednesday morning, down $0.90 (-2.22%). Year-to-date, DOCU has declined -28.47%, versus a 11.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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