The software industry is thriving due to rapid technological progress, with notable growth in areas such as Artificial Intelligence, Internet of Things, AR&VR, and cloud computing. So, I present quality software stocks, The Descartes Systems Group Inc. (DSGX), Sapiens International Corporation N.V. (SPNS), and MarketWise, Inc. (MKTW), with the potential for substantial gains.
In the past few years, the broad embrace of software products and solutions has been driven by the growth of e-commerce, the ascent of e-health, the surge in online services, the transition to remote work, and the proliferation of interconnected devices. Thus, the global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030.
Moreover, in the era of rapid digitization, businesses are progressively turning to hybrid and public cloud solutions to optimize their operations. Consequently, Software as a Service (SaaS) is emerging as the preferred delivery model for enterprise applications within cloud computing. SaaS spending is expected to grow by 17.9% to reach $197 billion this year. In addition, Gartner forecasts a 21.7% growth in global end-user spending on public cloud services, reaching $597.30 billion in 2023, up from $491 billion in 2022.
Furthermore, as businesses and industries continue to harness the power of Generative AI for improved efficiency and innovation, the generative AI industry in the U.S. is expected to reach $48.80 billion by 2033, expanding at a CAGR of 29.2%.
Given the industry tailwinds, it’s time to examine the fundamentals of the three software stocks.
The Descartes Systems Group Inc. (DSGX)
Headquartered in Waterloo, Canada, DSGX provides cloud-based logistics and supply chain management business process solutions that enhance logistics-intensive businesses’ productivity, performance, and security worldwide.
On November 14, 2023, DSGX announced that AkkuShop.de, an online battery technology retailer, has achieved a 300% increase in fulfillment efficiency with DSGX's ecommerce warehouse management system (WMS).
The solution optimizes order fulfillment and warehouse management processes for AkkuShop.de's extensive product catalog of over 20,000 items, contributing to enhanced customer satisfaction.
On October 31, DSGX revealed that Spacepro in the U.K. is leveraging the Descartes Customer Engagement Platform™ to improve the customer journey in its after-care department, serving sliding door and interior solution products for construction, newbuild, and online consumers nationwide.
DSGX’s revenues increased 16.6% year-over-year to $143.39 million in the fiscal second quarter that ended July 31, 2023. Its income from operations came in at $36.83 million, up 16.7% from the year-ago quarter. Its adjusted EBITDA increased 12.2% year-over-year to $60.60 million. Moreover, its net income increased 22.8% year-over-year to $28.12 million, and EPS rose 18.5% from the prior-year quarter to $0.32.
DSGX’s revenue and EPS for the fiscal third quarter ended October 2023 are expected to increase 18.7% and 12.9% year-over-year to $144.16 million and $0.35, respectively. It surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of DGSX have gained 20.1% over the past year and 9.1% over the past month to close the last trading session at $81.06.
DSGX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Stability and B for Quality. Among the 23 stocks in the A-rated Software – SAAS industry, it is ranked #8.
In addition to the POWR Ratings highlighted above, one can access DSGX’s additional Growth, Value, Sentiment, and Momentum ratings here.
Sapiens International Corporation N.V. (SPNS)
Headquartered in Holon, Israel, SPNS is an international provider of insurance and financial software solutions, offering a range of products such as CoreSuite for different insurance lines, DigitalSuite for stakeholders, and FinancialPro for financial tools. The company serves its global clientele through direct and partner sales channels.
On November 9, SPNS revealed that the Saskatchewan Workers' Compensation Board (WCB) had chosen SPNS' CoreSuite for Workers Compensation, DigitalSuite, and Intelligence. This selection aims to modernize WCB's legacy core systems, providing an integrated platform for efficient service delivery. Additionally, WCB will utilize SPNS' cloud services for seamless and secure hosting.
On October 25, SPNS introduced Sapiens Decision Model.AI, incorporating Microsoft Azure Open AI Service. This innovation enables the automatic translation of business policies into decision models, reducing the time needed by 30% and enhancing decision-making efficiency. The technology aims to streamline decision modeling, potentially bolstering the company's competitive edge and improving customer offerings in the insurance industry.
With a four-year average of 1.65%, the company pays $0.51 annually as dividends, which translates to a 2% yield on the prevailing price level. It has raised its dividend payouts at a CAGR of 20.6% over the past five years.
During the fiscal third quarter that ended September 30, 2023, SPNS’ non-GAAP revenue increased 9.9% year-over-year to $130.76 million. Its non-GAAP gross profit increased 10.7% from the prior-year quarter to $59.26 million. Its non-GAAP operating income grew 15.1% from the year-ago quarter to $24.06 million. Moreover, non-GAAP net income attributable to SPNS’ shareholders rose 13.1% year-over-year to $19.08 million.
Mr. Roni Al-Dor, President and CEO of the company, reiterated the 2023 full-year non-GAAP revenue guidance of $511-$516 million. Additionally, he announced an increase in the full-year 2023 non-GAAP operating margin guidance from 18%-18.2% to a new range of 18.2%-18.3%.
Analysts expect SPNS’ revenue for the fiscal fourth quarter ending December 2023 to increase 9.3% year-over-year to $130.54 million. Its EPS for the same quarter is expected to grow 5.8% year-over-year to $0.34. Moreover, it exceeded the EPS and revenue estimates in three of the trailing four quarters.
The stock gained 37.7% year-to-date and 31.9% over the past year to close the last trading session at $25.44.
SPNS’ 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.
It has a B grade for Growth, Value, Momentum, and Stability. Within the B-rated Software - Business industry, it is ranked #11 among 45 stocks.
Click here to view SPNS’ additional rating for Quality and Sentiment.
MarketWise, Inc. (MKTW)
MKTW operates a content and technology multi-brand platform for self-directed investors in the United States and Internationally. Its platform includes subscription businesses that provide financial research, software, education, and tools to navigate the financial markets.
The company pays an annual dividend of $0.04, which translates to a dividend yield of 1.33%, which is higher than the four-year average of 0.18%.
MKTW reported a net revenue of $106.15 million in the fiscal third quarter that ended September 30, 2023. Its total operating expenses declined 3.2% year-over-year to $95.11 million. Its free subscribers count grew 6% year-over-year to 16,34 million while paid subscribers count amounted to 773.83 thousand.
Also, for the nine months ended September 30, its cash and cash equivalents came in at $194.02, compared to $147.22 million as of September 30, 2022.
Street expects MKTW’s EPS to increase 273.4% year-over-year to $0.05 for the fiscal fourth quarter ending December 2023. The company’s revenue is likely to rise 16.9% from the previous-year quarter to $121.13 million in the fiscal 2024 second quarter ending June 2024. It has surpassed the revenue estimates in three of the trailing four quarters.
The stock returned 90.9% year-to-date to close the last trading session at $3.01. It has soared 113.8% over the past month.
It’s no surprise that MKTW has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Value and a B for Sentiment and Quality. It is ranked #16 in the 131-stock Software - Application industry.
Beyond what is stated above, we’ve also rated MKTW for Stability, Momentum, and Growth. Get all MKTW ratings 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.
DSGX shares were unchanged in premarket trading Monday. Year-to-date, DSGX has gained 16.38%, versus a 19.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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