The software market has been experiencing significant growth due to the increasing digital transformation across various industries globally. Thus, it could be wise to invest in fundamentally strong software stocks ServiceNow, Inc. (NOW), Clear Secure, Inc. (YOU), CSG Systems International, Inc. (CSGS), and Semrush Holdings, Inc. (SEMR).
Enterprises worldwide are increasingly seeking advanced software solutions to streamline business processes, reduce costs, and improve efficiency. Cloud-based software platforms have gained immense popularity as they offer flexibility, scalability, and cost-effectiveness compared to traditional on-premises solutions.
The business software market is expected to reach $1.10 trillion by 2029, growing at a CAGR of 11.2% during the forecast period (2024-2029). The use of software in business is crucial as it facilitates planning and design, adoption of cutting-edge technologies, including AI, machine learning, and IoT, and supply chain management.
Also, a growing number of cyber-attacks owing to the proliferation of e-commerce platforms, the emergence of smart devices, and the deployment of the cloud are key factors propelling cyber security market growth. End-user organizations are anticipated to integrate advanced cyber security solutions to mitigate cyber-attack risks, supporting market expansion.
Therefore, the global cyber security market is projected to total $500.70 billion by 2030, growing at a CAGR of 12.3%.
On top of it, investors’ confidence in the growth prospects of software stocks amid ongoing technological advancements and evolving business needs is reflected in the robust performance of the iShares Expanded Tech-Software Sector ETF (IGV), which has returned 33.6% over the past year.
Given the industry’s solid outlook, investing in top software stocks such as NOW, YOU, CSGS, and SEMR could be wise for future gains.
Let’s discuss the fundamentals of these stocks in detail:
ServiceNow, Inc. (NOW)
NOW provides end-to-end intelligent workflow automation platform solutions for digital businesses internationally. The company operates the Now platform for end-to-end digital transformation, artificial intelligence, machine learning, robotic process automation, process mining, performance analytics, and collaboration and development tools.
On March 20, 2024, NOW furthered its generative A leadership with new capabilities in its Washington, D.C. platform release. The new features enhance the Now Assist GenAI experiences, which offer responsible, intelligent automation embedded into the ServiceNow platform.
On March 18, NOW acquired 4Industry, a Netherlands-based partner whose manufacturing technology application is built on the Now Platform, and completed the acquisition of Smart Daily Management, a connected digital worker application from EY.
Together, the deals augment NOW’s existing operational technology (OT) management capabilities, adding Connected Worker solutions and enhancing expertise across key industrial markets such as manufacturing, energy, and transport & logistics.
NOW’s trailing-12-month gross profit margin of 78.59% is 60.5% higher than the industry average of 48.96%. Also, the stock’s trailing-12-month net income margin of 19.30% is 628.5% higher than the industry average of 2.65%. Its trailing-12-month EBIT margin of 8.49% is 78.4% higher than the industry average of 4.76%.
NOW’s total revenues increased 25.8% year-over-year to $2.44 billion during the fourth quarter that ended December 31, 2023. Its net income rose 96.7% year-over-year to $295 million. The company’s net income per share grew 93.2% from the year-ago value to $1.44.
In addition, the company’s cash and cash equivalents were $1.90 billion as of December 31, 2023, compared to $1.47 billion as of December 31, 2022.
Analysts expect NOW’s revenue and EPS for the fiscal first quarter (ended March 2024) to increase 23.5% and 32.2% year-over-year to $2.59 billion and $3.13, respectively. Additionally, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is remarkable.
Shares of NOW have surged 58.9% over the past year to close the last trading session at $735.81.
NOW’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
NOW has an A grade for Growth and a B for Quality and Sentiment. It is ranked #12 out of 44 stocks in the B-rated Software - Business industry.
In addition to the POWR Ratings we’ve stated above, we also have NOW ratings for Momentum, Value, and Stability. Get all NOW ratings here.
Clear Secure, Inc. (YOU)
YOU operates a secure identity platform under the CLEAR brand name. The company’s secure identity platform is a multi-layered infrastructure comprising a front-end, including enrollment, verification, and linking, and a back-end. It also provides CLEAR Plus, a consumer aviation subscription service, CLEAR mobile app, and CLEAR Verified, a B2B offering.
On April 8, 2024, YOU extended its partnership with American Express Company (AXP) as the companies recommit to delivering premium value to members and improving the airport experience.
This strategic partnership allows eligible American Express Card Members who enroll in CLEAR and pay using their American Express credit cards to receive up to $189 in annual statement credits for their membership purchases.
On April 3, YOU announced the availability of its secure identity technology in Terminal E at Boston Logan International Airport (BOS). With this expansion, CLEAR's expedited security lanes are now available at Terminals A, B, and E. The expansion is expected to bring the company's anticipated annual economic impact in Boston to nearly $5.30 million.
YOU’s trailing-12-month gross profit margin of 61.87% is 26.4% higher than the industry average of 48.96%. Further, the stock’s trailing-12-month ROCE and ROTA of 10.72% and 2.69% are considerably higher than the industry averages of 3.67% and 1.50%, respectively.
During the fiscal year that ended December 31, 2023, NOW’s revenues increased 13.6% year-over-year to $613.58 million. Its net income came in at $49.89 million, compared to a net loss of $115.44 million in the previous year. Its net income per share came in at $0.31, compared to a loss per share of $0.80 in the prior year.
Furthermore, the company’s cash and cash equivalents stood at $57.90 million as of December 31, 2023, versus $38.94 million as of December 31, 2022.
Analysts expect YOU’s revenue and EPS for the first quarter (ended March 2024) to increase 29.7% and 152.8% year-over-year to $171.72 million and $0.51, respectively.
YOU’s stock has gained 16.4% over the past six months to close the last trading session at $18.61
YOU’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B in Growth and Quality. YOU is ranked #3 among 22 stocks in the B-rated Software - Security industry.
Click here to access all YOU’s ratings (Momentum, Sentiment, and Stability).
CSG Systems International, Inc. (CSGS)
CSGS offers revenue management and digital monetization, customer experience, and payment solutions. It provides Advanced Convergent Platform, a private SaaS platform; and related solutions, including service technician management, analytics, and SaaS-based revenue management.
On March 4, 2024, CSGS partnered with Banglalink, the country’s innovative digital operator, for modular wholesale billing and settlement solutions to meet Banglalink’s anticipated CDR growth over the next five years.
On January 30, CSGS’s company, CSG Forte, a leader in complete and customizable digital payments, partnered with Lendica, an embedded AI lending company, to deliver an embedded business credit solution to small and medium-sized U.S. companies. These partnerships should bode well for the company.
CSGS’ trailing-12-month EBIT margin of 12.03% is 18.7% higher than the 10.13% industry average. Likewise, its 47.40% trailing-12-month gross profit margin is 30.7% higher than the industry average of 54.54%. Furthermore, the stock’s 14.83% trailing-12-month EBITDA margin is 8.4% higher than the industry average of 13.69%.
CSGS’ revenue for the fourth quarter ended December 31, 2023, increased 2.6% year-over-year to $297.32 million. Its non-GAAP net income rose 2.7% from the previous year’s period to $26.63 million. The company’s non-GAAP EPS increased 9.5% year-over-year to $0.92. Its non-GAAP free cash flow was $74.50 million for the quarter.
Street expects CSGS’s revenue for the second quarter (ending June 2024) to increase 3.4% year-over-year to $274.20 million, while its EPS for the ongoing quarter is expected to grow 17.1% year-over-year to $0.94, respectively. In addition, the company has topped the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has declined 6.7% to close the last trading session at $47.54.
CSGS’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Quality and Value. Within the B-rated Software - Business industry, CSGS is ranked #11 of 44 stocks.
Click here to access additional ratings of CSGS for Growth, Momentum, Stability, and Sentiment.
Semrush Holdings, Inc. (SEMR)
SEMR develops an online visibility management software-as-a-service platform in the U.S., the United Kingdom, and internationally. It enables companies to identify and reach the right audience for their content through the right channels.
SEMR’s trailing-12-month gross profit margin of 82.99% is 70.4% higher than the industry average of 48.71%. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.98x is 59% higher than the 0.61x industry average.
For the fourth quarter, which ended on December 31, 2023, SEMR’s revenue increased 21.2% year-over-year to $83.39 million, while its gross profit rose 22.7% from the prior-year quarter to $69.71 million. It reported a net income of $6.87 million and $0.05 per share versus a net loss of $13.90 million and $0.10 per share in the year-ago quarter, respectively.
Additionally, the company’s total current assets stood at $265.55 million, compared to $257.38 million as of December 31, 2022.
Analysts expect SEMR’s EPS for the first quarter (ended March 2024) to be $0.05. The company’s revenue is expected to grow 20% year-over-year to $85.05 million for the same period. Moreover, the company has topped the consensus EPS and revenue estimates in three of the trailing four quarters.
SEMR’s stock has surged 50.9% over the past six months to close the last trading session at $12.03.
SEMR’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B in Growth and Quality. Within the B-rated Software - Application industry, SEMR is ranked #16 out of 133 stocks.
Click here to access additional ratings of SEMR for Stability, Momentum, and Value.
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NOW shares were trading at $741.04 per share on Tuesday morning, up $5.23 (+0.71%). Year-to-date, NOW has gained 4.89%, versus a 6.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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