The adoption of innovative software solutions across various industries has significantly increased over the past few years, resulting in the rapid expansion of the software industry. The growing digitalization efforts among enterprises, technological advancements, and the increasing need to analyze vast amounts of business data have boosted the market’s prospects.
The revenue in the software industry is poised to reach $698.80 billion in 2024. The market is expected to grow at a CAGR of 5.3% during the forecast period (2024-2028), resulting in a market volume of $858.10 billion by 2028.
Moreover, the rapid adoption of business applications is buoyed by the need for efficiency, agility, risk management, data-driven decision-making, and improved customer experiences in today’s competitive business landscape. Also, the integration of advanced technologies such as AI, IoT, and edge computing is propelling the market’s expansion.
According to IMARC Group, the global enterprise application market is expected to reach $551 billion by 2032, growing at a CAGR of 6.8% from 2024 to 2032.
Given this backdrop, let’s compare two Software - Application stocks, Adobe Inc. (ADBE) and Intuit Inc. (INTU), to understand which stock is worth buying in May.
The Case for Intuit Inc. Stock
Intuit Inc. (INTU) provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals internationally. The company operates in four segments: Small Business & Self-Employed; Consumer; Credit Karma; and ProTax. Its market capitalization currently stands at $175.60 billion.
INTU’s stock has declined marginally over the past month but gained 47.2% over the past year to close the last trading session at $628.90.
In terms of forward non-GAAP P/E, INTU is trading at 38.19x, 62.3% higher than the industry average of 23.52x. Also, its forward EV/EBIT of 29.02x is 44.9% higher than the 20.02x industry average.
INTU’s trailing-12-month EBIT margin and net income margin of 23% and 18.35% are 414% and 674.4% higher than the respective industry averages of 4.47% and 2.37%. However, the stock’s trailing-12-month CAPEX/Sales of 1.49% is 35% lower than the industry average of 2.29%.
During the second quarter that ended January 31, 2024, INTU’s revenue increased 11.3% year-over-year to $3.39 billion. Its non-GAAP operating income grew 16.8% from the year-ago value to $1 billion. The company’s non-GAAP net income of $746 million and $2.63 per share indicates growth of 20.3% and 19.5% year-over-year, respectively.
According to the outlook for the third quarter, INTU expects revenue of $6.60 billion - $6.65 billion, and its operating income is expected to be $2.87 billion to $2.90 billion. Also, the company’s net income per share is expected to be $7.77 - $7.84.
For the full year 2024, the company expects revenue of $15.89 billion - $16.10 billion and operating income between $3.61 billion and $3.72 billion.
Analysts expect INTU’s revenue for the third quarter (ended April 2024) to increase 10.4% year-over-year to $6.64 billion, and its EPS for the same quarter is expected to grow 5.2% year-over-year to $9.38.
INTU’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a C grade for Stability, Growth, and Momentum. INTU is ranked #49 among 136 stocks in the Software - Application industry.
In addition to the POWR Ratings I’ve just highlighted, you can see INTU’s ratings for Sentiment, Value, and Quality here.
The Case for Adobe Inc. Stock
Adobe Inc. (ADBE) operates as a diversified software company globally. It operates in three segments: Digital Media; Digital Experience; and Publishing and Advertising. The company's products, services, and solutions enable customers to create, publish, and promote content and Document Cloud. Its market capitalization currently stands at $216.43 billion.
ADBE’s stock gained 1.3% over the past month and 39.8% over the past year to close the last trading session at $483.11.
On April 9, ADBE introduced the next generation of Frame.io to accelerate content workflow and collaboration for every creative project. Frame.io V4 will simplify complex cooperation across the entire content creation lifecycle, allowing more complex workflows, richer, more expressive feedback, and tighter review loops.
The new Frame.io integrations with Photoshop and Workfront also streamline collaboration for enterprises across the Content Supply Chain.
On March 26, ADBE and Microsoft (MSFT) partnered to bring new generative AI capabilities to marketers as they work in Microsoft 365 applications. The company will work to bring Adobe Experience Cloud workflows and insights to Microsoft Copilot for Microsoft 365 to help marketers overcome application and data silos and efficiently manage everyday work.
In terms of forward non-GAAP PEG, ADBE is trading at 1.63x, 15% lower than the industry average of 1.92x.
ADBE’s trailing-12-month gross profit margin and EBIT margin of 88.08% and 34.97% are 79.5% and 681.6% higher than the industry average of 49.06% and 4.47%, respectively. Also, its trailing-12-month net income margin of 24.08% is significantly higher than the industry average of 2.37%.
In the first quarter that ended March 1, 2024, ADBE’s total revenue increased 11.2% year-over-year to $5.18 billion. The company’s gross profit grew 12.2% from the year-ago value to $4.59 billion. Its non-GAAP net income came in at $2.05 billion and $4.48 per share, up 17.1% and 17.9% from the prior year’s quarter, respectively.
In addition, as of March 1, 2024, the company’s total cash and cash equivalents and total assets totaled $6.25 billion and $28.75 billion, respectively.
Street expects ADBE’s revenue and EPS for the second quarter (ending May 2024) to increase 9.8% and 12.3% year-over-year to $5.29 billion and $4.39, respectively. Moreover, the company topped the consensus EPS and revenue estimates in each of the trailing four quarters.
ADBE’s bright fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B grade for Sentiment. In the Software - Application industry, ADBE is ranked #42 among 136 stocks.
To check additional POWR Ratings for Value, Momentum, Growth, and Stability of ADBE, click here.
Is Adobe (ADBE) or Intuit (INTU) Worth Chasing in May?
The software industry is poised for continued growth and expansion due to high demand for advanced software solutions across several sectors, rapid technological advancements, and growing business software needs. Also, the rising integration and emergence of cloud-based services, AI, machine learning, and IoT boost demand for new, updated software.
Both ADBE and INTU stand to capitalize on these encouraging software industry trends. However, given its robust financials, accelerating profitability, and bright near-term outlook, ADBE appears to be a better choice than its rival INTU.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Application industry 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.
ADBE shares were trading at $476.00 per share on Tuesday morning, down $7.11 (-1.47%). Year-to-date, ADBE has declined -20.21%, versus a 9.96% 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.
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