Coupled with the accelerating pace of digital transformation within corporations, the software industry is forecasted to exhibit robust resilience in the upcoming years, attributed primarily to augmented investments in cloud-based technologies.
Given this backdrop, let’s look into the fundamentals of software stocks Akamai Technologies, Inc. (AKAM), Amdocs Limited (DOX), and SolarWinds Corporation (SWI) now.
The influence of the software industry on individuals and institutions globally remains undeniable. Even though the macroeconomic landscape was not favorable for this sector in the past year, the industry is projected to significantly boost the U.S. economy.
In this digital age, software has emerged as the critical backbone for every organization, fostering agility and efficiency. Through technological innovation, businesses have unlocked a plethora of opportunities, and hence, software has become an invincible tool in shaping a seamless operational landscape in every enterprise.
In a bid to enhance productivity and streamline expenditure, businesses are progressively making extensive investments in digital transitions to magnify their digital capabilities.
Software firms play a critical role in facilitating these digital transformations for enterprises by providing comprehensive services and solutions, including cloud computing and cybersecurity.
Talking about banking and investment services, Gartner’s Director Analyst, Debbie Buckland, said, “Rather than cutting IT budgets, organizations are spending more on the types of technologies that generate significantly higher business outcomes. Spending on software, for example, is shifting away from building it in-house, in favor of buying solutions that generate value from investments more rapidly.”
As software companies integrate generative AI tools into products, their customers should spend more on software. Goldman Sachs predicted that Generative AI will add an incremental $150 billion to the current global software market of $685 billion.
Furthermore, the SPDR S&P Software & Services ETF (XSW) grew 26.3% year-to-date, substantiating investors’ interest.
Given this backdrop, quality software stocks AKAM, DOX, and SWI could be wise portfolio additions now.
Akamai Technologies, Inc. (AKAM)
AKAM provides cloud solutions and services for securing, delivering, and computing content, applications, and software through its worldwide network of servers.
On June 21, the company was recognized as a Leader in the IDC MarketScape: Worldwide Network Edge Security as a Service (NESaaS) 2023 Vendor Assessment. The analyst firm commended AKAM’s proven track record of delivering security without performance trade-offs through its mature application security portfolio.
Further, Pavel Gurvich, Senior Vice President and General Manager, Enterprise Security at AKAM, said that this recognition reflects “how enterprises can leverage Akamai’s broad security portfolio to help them transition to a Zero Trust security architecture.”
AKAM’s trailing-12-month EBIT and EBITDA margins of 19.42% and 30.91% are 367.2% and 266.2% higher than the 4.16% and 8.44% industry averages, respectively. Its trailing-12-month ROCE of 11.51% is significantly higher than the 0.23% industry average.
AKAM’s total revenue increased 1.3% year-over-year to $915.70 million in the fiscal first quarter that ended March 31, 2023. Net cash provided by operating activities grew 5% from the year-ago value to $233.50 million.
During the same quarter, its non-GAAP operating income and non-GAAP net income amounted to $263.84 million and 218.31 million, respectively. Also, its adjusted net income per share increased marginally year-over-year to $1.40.
The consensus revenue and EPS estimates of $932.07 million and $1.42 for the fiscal third quarter ending September 2023 reflect 5.7% and 12.4% increases year-over-year, respectively. The company has an excellent earnings surprise history, as it surpassed the EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 12.7% over the past three months to close the last trading session at $90.94. The stock has gained 7.9% year-to-date.
AKAM’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates 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.
It also has a B grade for Value and Quality. Out of 49 stocks in the Software – Business industry, it is ranked #7.
Click here to see the additional POWR Ratings for AKAM (Growth, Momentum, Stability, and Sentiment).
Amdocs Limited (DOX)
DOX is a provider of software and services to communications and media companies. Its offerings are based on a product and services mix, using technologies and methodologies such as 5G cloud, microservices, DevOps, open source, bimodal operations, SRE, and automation through standard IT tools, open application programming interfaces, and AI.
On July 3, DOX announced the completion of the acquisition of TEOCO's service assurance business. This acquisition will enable DOX to provide service providers with a unique end-to-end service orchestration offering, assuring the quality of service and enabling the monetization of next-generation dynamic customer experiences.
On June 26, DOX unveiled its industry-leading Network Inventory solution to provide its customers with advanced network and service automation capabilities. By utilizing AI/machine learning-driven automated actions, this solution allows the company to deliver and maintain service markets more efficiently.
This move is expected to improve DOX’s offering and might help attract new customers.
On May 10, DOX’s Board approved the quarterly dividend payment of $0.435 per share, payable to the shareholders on July 28. It pays an annual dividend of $1.74, which translates to a dividend yield of 1.79%.
Its four-year average dividend yield is 1.81%. The company’s dividend payouts have grown at a CAGR of 10.7% over the past three years and 12.1% over the past five years.
DOX’s trailing-12-month EBIT and EBITDA margins of 14.74% and 19.52% are 254.5% and 131.2% higher than the 4.16% and 8.44% industry averages, respectively. Its trailing-12-month ROCE of 15.02% is significantly higher than the 0.23% industry average.
During the second quarter that ended March 31, 2023, DOX’s revenue increased 6.8% year-over-year to $1.22 billion, while its operating income from operations stood at $182.28 million, up 11.4% from the prior year’s quarter.
Also, the company’s non-GAAP attributable net income and earnings per share amounted to $178.59 million and $1.47, respectively, in the same quarter. In addition, its free cash flow improved 113.3% year-over-year to $259.36 million.
For the fiscal fourth quarter ending September 2023, Street expects DOX’s revenue and EPS to increase 7.2% and 16.3% year-over-year to $1.25 billion and $1.50, respectively. Moreover, it topped the EPS and revenue estimates in three of the trailing quarters.
Shares of DOX have gained 9.2% over the past six months to close the last trading session at $97.17. Over the past year, DOX has gained 17.6%.
It is no surprise that DOX has an overall rating of B, which translates to Buy in the POWR Ratings system.
It also has a B grade for Stability, Sentiment, and Quality. In the same industry, it is ranked #8.
In addition to the POWR Ratings highlighted above, one can see the DOX ratings for Growth, Value, and Momentum here.
SolarWinds Corporation (SWI)
SWI provides Information Technology (IT) management software products in the United States and internationally. The company offers a portfolio of solutions to technology professionals for monitoring, managing, and optimizing networks, systems, desktops, applications, storage, databases, website infrastructures, and IT service desks.
On May 30, SWI unveiled a new brand reflecting the company’s recent transformative efforts to evolve its business, expand its product portfolio, and enhance its go-to-market strategy.
On May 16, SWI announced adding transformative AI and ML capabilities to its IT Service Management (ITSM) solutions. The new AI features include a virtual agent to help users solve everyday IT problems and guided incident resolution to empower agents with the information they need to resolve complex issues effectively.
SWI’s trailing-12-month EBIT and EBITDA margins of 19.26% and 28.12% are 363.4% and 233.1% higher than the 4.16% and 8.44% industry averages, respectively. Its trailing-12-month gross profit margin of 90.61% is 86% higher than the 48.72% industry average.
During the fiscal first quarter that ended March 31, 2023, SWI’s total revenue increased 5.1% year-over-year to $185.98 million, while its gross profit increased 15.8% year-over-year to $164.15 million. Its adjusted EBITDA increased 12.5% year-over-year to $77.37 million.
Moreover, non-GAAP net income and non-GAAP earnings per share came in at $32.88 million and $0.20, respectively.
SWI’s revenue is expected to increase 1.7% year-over-year to $182.45 million for the fiscal third quarter ending September 2023. Its EPS is expected to be $0.18 for the same quarter. Moreover, SWI topped consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
For the fiscal year ending December 2023, SWI expects its total revenue to be between $725 million and $740 million, while adjusted EBITDA is expected to come between $295 million and $305 million. Furthermore, non-GAAP earnings per share is expected to come in between $0.71 and $0.76.
Shares of SWI have gained 12.1% over the past six months to close the last trading session at $10.31. Moreover, over the past three months, SWI has gained 23.5%.
SWI’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Sentiment. It is ranked #9 within the same industry.
Beyond what is stated above, we’ve also rated for Momentum, Stability, and Quality. Get all SWI ratings here.
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AKAM shares were trading at $90.86 per share on Wednesday afternoon, down $0.08 (-0.09%). Year-to-date, AKAM has gained 7.78%, versus a 17.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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