The software market in 2024 is thriving due to significant advancements in cloud adoption and AI evolution, driving innovation and user-centric solutions across industries. Thus, investors could consider investing in top software stocks Cadence Design Systems, Inc. (CDNS), Sprinklr, Inc. (CXM), and EverCommerce Inc. (EVCM) this month to achieve financial success.
The global software market is booming, fueled by increasing data volumes, automation, and cybersecurity concerns, accelerated by the pandemic's impact on remote work. Also, the ongoing significant advancements and investments in security software highlight the industry's response to evolving cyber threats.
Companies are finding more uses for technology, with software being a frontrunner. Gartner expects global software spending to grow 12.7% from 2023 to reach $1.03 trillion this year.
Moreover, the global application development software market is buoyed by the escalating demand for mobile applications, with North America leading the charge. The global application development software market is projected to grow at a CAGR of 24.5% to reach $730.70 billion by 2030.
Furthermore, the global Software as a Service (SaaS) market is rapidly growing, driven by increased adoption of public cloud services and demand for cost-effective deployment options. This growth is bolstered by rising demand for CRM SaaS solutions and accelerated remote work trends. The global SaaS market is projected to grow at a CAGR of 18.7% to reach $908.21 billion by 2030.
Considering these conducive trends, let’s examine the fundamentals of three software stocks.
Cadence Design Systems, Inc. (CDNS)
CDNS is a global leader in providing software, hardware, and services for integrated circuit design across diverse industries. Its solutions encompass functional verification, digital and custom IC design, serving a wide array of clients worldwide.
CDNS’ trailing-12-month ROTA of 18.36% is significantly higher than the industry average of 0.79%. Also, the stock’s trailing-12-month cash from operations of $1.35 billion is significantly higher than the industry average of $81.04 million.
During the fourth quarter, which ended December 31, 2023, CDNS’ total revenue grew 18.8% year-over-year to $1.07 billion. The company's income from operations and net income rose 59.4% and 34.7% from a year-ago quarter to $336.53 million and $323.90 million, respectively. Moreover, its net income per share increased 35.2% from the previous-year quarter to $1.19.
The company forecasts its non-GAAP net income to be between $302 million and $313 million for the fiscal first quarter ending March 31, 2024. Also, its non-GAAP net income per share for the same quarter is expected to be in the range of $1.10 to $1.14.
CDNS’ revenue and EPS are expected to grow 12.2% and 15.3% year-over-year to $4.59 billion and $5.94, respectively, for the fiscal year ending December 2024. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
CDNS’ shares have surged 60.2% over the past year and 46.4% over the past nine months to close the last trading session at $294.33.
CDNS’ 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, each weighted optimally.
It has an A grade for Quality. Among the 131 stocks in the Software - Application industry, it is ranked #45.
In addition to the POWR Ratings stated above, access CDNS’ Growth, Value, Momentum, Stability, and Sentiment ratings here.
Sprinklr, Inc. (CXM)
CXM offers a comprehensive Unified Customer Experience Management platform, empowering businesses to analyze and engage with customers across diverse channels worldwide. Its cloud software products enable companies to streamline marketing operations, enhance customer service, and gain valuable insights from modern channels.
On January 4, 2024, CXM announced the approval of the repurchase of up to $100 million of its Class A common stock through open market purchases, taking into account factors such as economic cost, market conditions, and trading prices.
CXM’s trailing-12-month net income margin of 4.21% is 89.5% higher than the industry average of 2.22%. Its trailing-12-month ROTA of 2.72% is 243.4% higher than the industry average of 0.79%.
In the third quarter, which ended October 31, 2023, CXM’s total revenue grew 18.5% from a year-ago quarter to $186.33 million. The company's non-GAAP operating income and net income surged 299.4% and 456.1% year-over-year to $27.44 million and $31.22 million, respectively. Also, its non-GAAP net income per share increased 450% from the prior-year quarter to $0.11.
For the fourth fiscal quarter, which ended January 31, 2024, the company anticipates total revenue to be between $187.5 million and $189.5 million, with non-GAAP operating income projected to range from $20.3 million to $22.3 million. Additionally, its non-GAAP net income per share is expected to fall within the range of $0.08 to $0.09.
Street expects CXM’s revenue and EPS to grow 14.2% and 45.6% year-over-year to $188.74 million and $0.09, respectively, for the fiscal fourth quarter ended January 2024. The company surpassed the revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 15.6% over the past year to close the last trading session at $12.43.
CXM’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CXM has an A grade for Growth and a B for Sentiment. Within the Software - Application industry, it is ranked #40.
To access additional ratings for CXM’s Value, Momentum, Stability, and Quality, click here.
EverCommerce Inc. (EVCM)
EVCM delivers integrated software solutions for global service-based SMBs, facilitating efficient management and growth across diverse industries with billing, customer engagement, and marketing technology.
On November 5, 2023, EVCM extended the stock repurchase authorization by $50 million, totaling $150 million, until December 31, 2024. The company repurchased 160,000 shares for approximately $1.60 million in the three months ended September 30, 2023, leaving $16 million available under the Repurchase Program as of that date.
EVCM’s trailing-12-month EBITDA margin of 14.57% is 58.1% higher than the industry average of 9.21%. Its trailing-12-month levered FCF margin of 15.16% is 69.1% higher than the industry average of 8.97%.
During the third quarter, which ended September 30, 2023, EVCM’s total revenues surged 10.5% year-over-year to $174.74 million. The company's adjusted gross profit and EBITDA increased 12.7% and 38.6% from the prior-year quarter to $113.27 million and $41.80 million, respectively. As of September 30, 2023, its liabilities amounted to $679.14 million, compared to its liabilities of $685.04 million as of December 31, 2022.
The company's financial guidance for the fourth quarter of 2023 anticipated revenue between $170 million and $174 million and adjusted EBITDA between $35.5 million and $39.5 million.
Analysts expect EVCM’s revenue and EPS to grow 9.3% and 29.2% year-over-year to $678.34 million and $0.52, respectively, for the fiscal year ended December 2023.
The stock has gained 19.4% over the past three months to close the last trading session at $9.49.
EVCM’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
EVCM has an A grade for Growth and Sentiment and a B for Value and Stability. Within the B-rated Software - SAAS industry, it is ranked #7.
Click here for EVCM’s additional Momentum and Quality ratings.
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.
CDNS shares were trading at $299.85 per share on Wednesday afternoon, up $5.52 (+1.88%). Year-to-date, CDNS has gained 10.09%, versus a 4.24% 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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