The software application industry has grown significantly due to increased digitization investments, the rise of mobile apps, and the growing use of cloud-based solutions. Therefore, it could be wise to own fundamentally sound software stocks Intuit Inc. (INTU), MarketWise, Inc. (MKTW) and Salesforce, Inc. (CRM).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
Rising digitization initiatives, the rise of mobile apps, and cloud-based solutions have increased demand for software applications across a wide range of industries. Likewise, the accessibility and convenience provided by these applications have boosted their popularity among both consumers and businesses.
The global software market is expected to reach $659 billion in revenue in 2023. Also, the revenue is predicted to grow at a 5.4% CAGR until 2028, resulting in a market volume of $858.10 billion.
Moreover, according to Gartner, worldwide software spending is projected to grow 13.7% in 2023. Rapid digital transformation worldwide is boosting the application development software market growth.
The market for application development software is anticipated to grow at a CAGR of 20.6% until 2028. The global demand for application development software is expanding as a result of technology improvements, including web-based and installation choices, which are driving market expansion.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Software - Application stocks, starting with number 3.
Stock #3: Intuit Inc. (INTU)
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in four segments: Small Business and self-employed, Consumer, Credit Karma, and ProTax.
On October 16, 2023, INTU introduced QuickBooks Bill Pay, an integrated solution within Intuit QuickBooks. It streamlines bill payments, automates accounts payable, and reduces manual entry by 48%. The service offers automated bill creation, role assignment for team members, digital record-keeping, payment options, and 1099 management.
David Talach, Senior VP of QuickBooks Money Platform at INTU, predicted that QuickBooks Bill Pay would revolutionize money movement and address the primary issue small businesses face – cash flow, aiming to provide an all-encompassing financial solution for small businesses to enhance automation and financial visibility.
INTU’s trailing-12-month ROCE of 14.14% is significantly higher than the 1.13% industry average. Its trailing-12-month ROTA of 8.58% is significantly higher than the 0.03% industry average.
INTU’s net revenues for the fourth quarter ended July 31, 2023, increased 12% year-over-year to $2.71 billion. Its non-GAAP operating income increased 45% year-over-year to $627 million. The company’s non-GAAP net income increased 50.2% year-over-year to $467 million. Also, its non-GAAP EPS came in at $1.65, representing an increase of 50% year-over-year.
Analysts expect INTU’s revenue to increase 11.6% year-over-year to $16.04 billion for the year ending July 2024. Its EPS is expected to grow at 13.9% year-over-year to $16.39 for the same period. It surpassed EPS estimates in all four trailing quarters. Shares of INTU have gained 27.2% year-to-date to close the last trading session at $494.95.
INTU’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 assess stocks by 118 different factors, each with its own weighting.
INTU also has a B grade for Growth, Sentiment and Quality. It is ranked #30 out of 131 stocks in the Software - Application industry. Click here for the additional POWR Ratings for Stability, Value, and Momentum for INTU.
Stock #2: 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.
MKTW’s trailing-12-month asset turnover ratio of 1.09x is 418.3% higher than the 0.21x industry average. Its trailing-12-month gross profit margin of 87.58% is 45.6% higher than the 60.16% industry average.
MKTW reported a net revenue of $103.60 million in the second quarter that ended June 30, 2023. Also, its cash and cash equivalents came in at $187.02 million as of June 30, 2023, compared to $158.58 million as of December 31, 2022. The company’s current liabilities came in at $354.62 million as compared to $385.51 for the same period.
Street expects MKTW’s EPS to increase 70.1% year-over-year to $0.10 for the year ending December 2023. The company’s EPS and revenue for the fiscal year 2024 is expected to grow 133.5% and 10.2% from the prior year to $0.22 and $491.98 million, respectively. The stock gained 17.9% over the past six months to close the last trading session at $2.17.
It’s no surprise that MKTW has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Quality. It is ranked #12 in the same industry.
Beyond what is stated above, we’ve also rated MKTW for Stability, Sentiment, Momentum and Growth. Get all MKTW ratings here.
Stock #1: Salesforce, Inc. (CRM)
CRM is a cloud-based software company. It provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company’s CRM software and application focus on sales, marketing automation, customer service, e-commerce, and analytics.
CRM’s trailing-12-month levered FCF margin of 31.95% is 333.4% higher than the industry average of 7.37%. Its trailing-12-month ROTA of 1.71% is significantly higher than the industry average of 0.03%.
During the fiscal second quarter that ended July 31, 2023, CRM’s total revenues came in at $8.60 billion, up 11.4% year-over-year, while its gross profit stood at $6.49 billion, up 16% from the year-ago quarter.
The company’s non-GAAP net income and net income per share rose 76% and 78.2% year-over-year to $2.09 billion and $2.12, respectively.
The consensus revenue estimate of $34.77 billion for the year ending January 2024 represents a 10.9% increase year-over-year. Its EPS is expected to grow at 53.9% year-over-year to $8.07 for the same period. It surpassed EPS estimates in all four trailing quarters. CRM’s shares have gained 51.5% year-to-date to close the last trading session at $200.83.
CRM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #11 in the same industry. It has an A grade for Growth and a B for Stability, Sentiment and Quality. To see additional CRM’s ratings for Value and Momentum, click here.
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CRM shares were trading at $202.28 per share on Wednesday afternoon, up $1.45 (+0.72%). Year-to-date, CRM has gained 52.56%, versus a 11.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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