Increasing business adoption of digitalization and technological advancements in the cloud are expected to drive growth in the software industry. Given the rosy prospects of the sector, investors could consider quality software stocks Amdocs Limited (DOX), ServiceNow, Inc. (NOW), and VMware, Inc. (VMW).
A surge in the volume of enterprise data and rising automation of business processes are the major drivers of the software market. Moreover, increasing network security and privacy concerns support the industry's growth.
As a result, the global software market is expected to grow at a CAGR of 11.5% until 2030.
Moreover, companies’ digital transformation in general drives investments in software segments. Especially software that focuses on digitization and process automation as well as data analytics to gain more business insights and efficiency.
Also, software investments are increasingly shifted to the cloud, to be more flexible and independent. The global cloud computing market is expected to grow at a CAGR of 14.1% until 2030.
Additionally, it is estimated that over 50% of enterprise software application usage will be via cloud-based software deployment by 2025.
Considering these conducive trends, let's take a look at the fundamentals of the three best Software - Business stocks, starting with number 3.
Stock #3: Amdocs Limited (DOX)
DOX provides software and services worldwide. It designs, develops, operates, implements, supports, and markets open and modular cloud portfolio.
On September 18, 2023, DOX announced the expansion of their global collaboration to empower customers on their journey towards cloud and digital adoption with Oracle Cloud Infrastructure (OCI).
On September 6, DOX announced the launch of its Generative AI-powered Cloud Management Platform. This new version of the platform, integrated with the leading public cloud providers, includes a set of generative AI-powered solutions designed to hyper-automate service development and operations, and manage and streamline a service provider's entire IT and business operations lifecycle.
DOX’s trailing-12-month EBIT margin of 14.78% is 227.5% higher than the 4.51% industry average. Its trailing-12-month asset turnover ratio of 0.74x is 19.6% higher than the 0.62x industry average.
DOX’s revenue increased 6.9% year-over-year to $1.24 million in the fiscal second quarter that ended June 30, 2023. Its non-GAAP net income increased 21.1% year-over-year to $189.61 thousand. The company’s non-GAAP EPS increased 23.6% year-over-year to $1.57.
Street expects DOX’s revenue to increase 6.4% year-over-year to $1.24 billion in the fiscal third quarter ending September 2023. Its EPS for the same quarter is expected to increase 9.8% year-over-year to $1.42. Also, it has surpassed EPS and revenue estimates in three of the trailing four quarters, which is remarkable.
Over the past year, the stock has gained 8.8% to close the last trading session at $86.34.
DOX’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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality, Stability, and Sentiment. It is ranked #6 in the 45-stock in the Software - Business industry.
To access DOX’s additional ratings for Growth, Value, Stability, and Momentum, click here.
Stock #2: ServiceNow, Inc. (NOW)
NOW provides enterprise cloud computing solutions that define, structure, consolidate, manage, and automate services for enterprises worldwide. It operates the Now platform for workflow automation, artificial intelligence, machine learning, process mining, performance analytics, electronic service catalogs, portals, etc.
On September 25, NOW, GivePower, and Mombasa County announced the grand opening of a new Solar Water Farm Max in Mshomoroni, Kenya. This new project will produce up to 75,000 liters of clean drinking water for the surrounding community, experiencing its worst drought in decades. The system is the fourth constructed in Mombasa County by GivePower.
On September 20, 2023, DOX announced comprehensive new automation solutions in the Now Platform Vancouver release. The new solutions enhance security and governance, simplify critical processes in healthcare and finance, and accelerate talent transformation through AI.
NOW’s trailing-12-month EBIT margin of 6.32% is 40.1% higher than the 4.51% industry average. Its trailing-12-month EBITDA margin of 12.42% is 35.8% higher than the 9.15% industry average.
NOW’s total revenues increased 22.7% year-over-year to $2.15 billion in the second quarter (ended June 30, 2023) and its non-GAAP gross profit rose 22.7% from the year-ago value to $1.76 billion. Its non-GAAP income from operations income increased 36.3% from the prior-year quarter to $544 million.
In addition, the company’s non-GAAP net income amounted to $486 million and $2.37 per share, representing 47.7% and 46.3% year-over-year increases, respectively.
Analysts expect NOW’s EPS and revenue for the current quarter (ending September 30, 2023) to increase 29.8% and 24% year-over-year to be $2.54 and $2.27 billion, respectively. The company has an impressive earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
NOW’s shares have gained 48.4% over the past year to close the last trading session at $559.48.
NOW’s POWR Ratings reflect its positive prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B in Sentiment and Quality. It is ranked #10 in the same industry.
Beyond what is stated above, we’ve also rated for Value, Stability, and Momentum. Get all NOW ratings here.
Stock #1: VMware, Inc. (VMW)
VMW provides diverse software solutions globally, spanning modern applications, cloud management, networking, security, and workspaces. Its offerings encompass multi-cloud solutions, networking solutions like NSX, security solutions with Carbon Black, and workspace solutions, including Workspace ONE.
On August 22, 2023, VMW introduced new Private AI offerings to drive enterprise adoption of generative artificial intelligence and tap into the value of trusted data. Private AI is an architectural approach that unlocks the business gains from AI with the practical privacy and compliance needs of an organization.
VMW’s trailing-12-month EBIT margin of 16.05% is 255.5% higher than the 4.51% industry average. Its trailing-12-month EBITDA margin of 20.51% is 124.1% higher than the 9.15% industry average.
For the fiscal second quarter ended August 4, 2023, VMW’s total revenue increased 6.1% from the previous year’s quarter to $3.41 billion. Its non-GAAP operating income increased 6.2% from the year-ago value to $819 million. The company’s adjusted net income and non-GAAP EPS came in at $644 million and $1.49, representing increases of 18.8% and 16.4%, respectively, from the prior-year quarter.
The consensus revenue estimate of $3.41 billion for the second quarter (ending October 2023) represents a 6.2% increase year-over-year. The consensus EPS estimate of $1.73 for the same quarter indicates a 17.51% increase year-over-year.
VMW’s shares have gained 52.2% over the past year to close the last trading session at $166.76.
VMW’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
VMW has an A grade for Quality and a B in Sentiment. It is ranked #2 in the same industry.
Click here to see the additional POWR Ratings for VMW (Momentum, Growth, Value, and Stability).
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VMW shares were trading at $166.37 per share on Tuesday morning, down $0.39 (-0.23%). Year-to-date, VMW has gained 35.52%, versus a 13.12% 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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