2 Software Stocks to Buy This Week and 2 to Avoid
Despite the rate hikes that have plagued tech stocks since the beginning of the year, the prospects for the software industry are strong due to rapid digitalization, demand for cloud-based services, and the rapid pace at which they are being developed. Salesforce (CRM), Mitek Systems(MITK) are fundamentally strong software stocks that could be worth purchasing to capitalize on the long-term growth prospects of the industry. However, it would be wise not to buy fundamentally weak stocks Robinhood Markets and Fastly (FSLY) to avoid missing out on the industry’s long term growth prospects. Continue reading ….
Due to various macroeconomic concerns, 2022 has been a difficult year for tech stocks. Due to Fed’s aggressive rate increases, high-growth tech stocks have become less attractive to investors. This has led to the tech-heavy Nasdaq Composite losing 28.6% for the year.
However, inflation is showing signs of cooling, with November’s CPI rose 0.1% Below analyst estimates, the inflation rate was 7.1% higher than it was a year ago and 6.9% in the month before. The Fed has been able to keep its word that rate hikes will be slowed down due to the easing of inflation. Yesterday, a rate increase of 50 basis points was announced.
Software stocks could become attractive investments options again, as the Fed slows down rate increases. Gartner estimates that enterprise software spending is at its lowest level since 2007. Prognosticated to increase 8.6% by 2023.
Despite the bright prospects for the industry, not all software stocks are likely to prove to be profitable investments. To capitalize on the industry’s recovery prospects, you might be wise to invest in fundamentally strong software stocks Salesforce, Inc.CRM) and Mitek Systems, Inc.MITK). Robinhood Markets, Inc.HOOD) and Fastly, Inc.FSLYBecause of their weak fundamentals, and poor growth prospects, it is best to avoid them now.
Stocks to Buy
Salesforce, Inc. (CRM)
CRM is a customer relationship management platform that connects customers and companies worldwide. The company’s Customer 360 platform allows customers to collaborate to create connected experiences for customers. The company offers services in Sales, Marketing, and Commerce.
Zywave, an Insurtech leader, announced a dedicated partnership with CRM on September 21, 2022. This partnership is expected to bring together the worlds insurance agency sales and client services, creating more efficient, strategic workflows powered with data and content to deliver a seamless customer experience.
Raja Singh, Senior Vice President and General Manager at CRM, stated, “Zywave and Salesforce enable users to efficiently perform their jobs and unlock their crucial business data, so it is possible to leverage it for real-time intelligence going ahead.”
CRM’s fiscal third quarter ended October 31, 2022 saw total revenues rise 14.2% year-over–year to $7.84 Billion. The company’s gross profits increased by 14.5% to $5.75 Billion. Its income from operations grew significantly to $460 million year-over-year.
Analysts expect CRM’s EPS Revenue for the quarter ending December 31, 2022 will increase by 61.6% year-over-year, and 9.2% to $1.36 billion and $8 billion, respectively. CRM has a remarkable earnings surprise history. It has exceeded the consensus EPS estimates in all four of its trailing quarters. The stock fell 15.1% in the past month to close at $134.75 during the last trading session.
CRM’s strong foundations are reflected in its Ratings for POWR. The stock has an overall rating B, which is equivalent to a Buy under our proprietary rating system. The POWR Ratings evaluate stocks using 118 factors, each with its own weighting.
Within the Software – Application It is #15 among 139 stocks. It is rated A for Growth and B for Sentiment.
We also gave CRM grades for Quality, Momentum, Stability, Value, and Quality.All CRM ratings available Here.
Mitek Systems, Inc. (MITK)
MITK develops and markets mobile image capture and digital identity validation solutions around the world. To facilitate digital consumer experiences, the company’s solutions can be embedded in native mobile apps as well as web browsers. It offers products like Mobile Deposit, Mobile Verify and Mobile Fill, CheckReader, and many others.
MITK’s fiscal third quarter ended June 30, 2022 saw its total revenue rise 23.8% year over year to $39.33million. Its non-GAAP net profit was $10.18 million. The company’s non GAAP EPS was $0.23, which is unchanged from the previous year.
Analysts predict that MITK’s quarter ending September 30, 2022 will see a 16.1% increase in revenue to $38.61million. Its EPS is expected increase 17.1% year over year to $0.89 for fiscal 2022.
It has a commendable history of earnings surprises, exceeding the consensus EPS estimates in all four quarters. The stock gained 24.7% in the past six months to close at $10.90 during the last trading session.
It’s not surprising that MITK has an overall rating B. This means that it is a Buy according to our proprietary rating system. It is ranked #8 in the Software – Application industry. It also has a B-grade for Growth, Value and Quality.
Click here Click here to view the additional ratings for MITK Momentum, Stability and Sentiment.
Stocks to Avoid
Robinhood Markets, Inc. (HOOD)
HOOD is a financial platform that allows users to trade stocks, options, gold, and exchange-traded funds. Snacks and Learn, Newsfeed, as well as cash management services are some of the many learning and education options offered by HOOD.
HOOD’s fiscal third quarter net revenues decreased 1.1% year-over–year to $361 millions. Its net loss decreased 87% year over year to $175million. Its loss per share decreased by 90.3% to $0.20 year-over-year.
HOOD’s EPS is expected to remain negative for the quarter ending December 31, 2022. Its revenue for fiscal 2022 will decline 24.6% year over year to $1.37 trillion. The stock closed the last trading session at $9.09, having fallen 48.8% over the past year.
HOOD’s dire outlook is reflected by its POWR Ratings. According to our proprietary rating system, the company’s overall rating is D. This translates into a Sell rating. It is ranked #120 in the same industry. The company received an F for Stability and a DD for Value and Quality.
Click here Click here to view the additional POWR Ratings for HOOD for Growth and Momentum as well as Sentiment.
Fastly, Inc. (FSLY)
FSLY has an edge cloud platform that enables it to process, serve, and secure its customers’ applications around the world. The edge cloud is a type of Infrastructure as a Service that allows developers to create, secure, and deliver digital experiences on the edge of the internet. It is a platform that can be programmed to deliver web and applications.
FSLY’s non GAAP gross margin was 53.6% for the fiscal third quarter ending September 30, 2022. This compares to 57.5% for the previous year. The company’s non GAAP operating loss increased 53.4% to $19.84million. The company’s non-GAAP net loss per share increased 27.3% over the previous-year quarter to $0.14.
FSLY’s quarter ending December 31, 2022 will see a negative EPS. The stock fell 73.2% year to date to close the last trading session at $9.50.
The POWR Ratings of FSLY reflect the dire prospects. According to our proprietary rating system, the company’s overall rating is D. This is equivalent to a Sell. It is ranked #130 within the Software & Application industry. It also has a D-grade for Momentum, Stability and Sentiment.
For additional ratings on FSLY, click here. Click here.
On Thursday afternoon, CRM shares traded at $130.55 per Share, down 4.20 (-3.12%) CRM shares are down 48.63% year-to-date compared to a -16.86% increase in the benchmark S&P 500 Index during the same period.
About the Author: Malaika alphonsus
Malaika’s passion and interest in writing led her to invest in research.
She holds a degree in Economics, Psychology and hopes to help investors make informed investment decisions.
The author of 5 books, 3 of which are New York Times bestsellers. I’ve been published in more than 100 newspapers and magazines and am a frequent commentator on NPR.