From commerce to culture, software is digitizing every aspect of our lives. The undeniable tailwinds fueling the industry have also led to decent returns for SaaS stocks lately as they’ve gained 9.2% over the past six months. This performance was almost identical to the S&P 500.
Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. With that said, here are two resilient software stocks at the top of our wish list and one we’re steering clear of.
One Software Stock to Sell:
Five9 (FIVN)
Market Cap: $1.90 billion
Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ: FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.
Why Should You Dump FIVN?
- Average billings growth of 9.4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 10.1% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 55.5% reflects its high servicing costs
Five9 is trading at $25.30 per share, or 1.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FIVN.
Two Software Stocks to Watch:
Freshworks (FRSH)
Market Cap: $2.93 billion
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ: FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Why Do We Like FRSH?
- 25.8% annual revenue growth over the last five years surpassed the sector average as its software resonated with customers
- Superior software functionality and low servicing costs result in a premier gross margin of 85%
- Robust free cash flow margin of 25.7% gives it many options for capital deployment
Freshworks’s stock price of $10.51 implies a valuation ratio of 3x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
PTC (PTC)
Market Cap: $14.28 billion
Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ: PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.
Why Are We Bullish on PTC?
- Average billings growth of 21% over the last year enhances its liquidity and shows there is steady demand for its products
- Superior software functionality and low servicing costs are reflected in its stellar gross margin of 84.7%
- Highly efficient business model is illustrated by its impressive 38.7% operating margin, and it turbocharged its profits by achieving some fixed cost leverage
At $123.14 per share, PTC trades at 5.4x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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