With growing optimism surrounding the market’s rebound, the software sector is well-positioned to capitalize on the industry’s tailwinds and witness significant growth. Therefore, investors looking to buy and hold quality software stocks forever could consider GoDaddy Inc. (GDDY) and Commvault Systems, Inc. (CVLT) this week.
Software shares were hit particularly hard by the Fed’s dramatic pace of rate increases over the past year, a tough medicine many tech companies and investors swallowed.
However, the central bank’s rate hikes eventually seem to bear fruit as inflation eased for the seventh straight month in January, with the Consumer Price Index (CPI) rising 6.4% year-over-year. Earlier this month, the Federal Reserve raised its benchmark interest rate by 0.25 percentage points. Given the slowing pace of interest rate hikes, the pressure on software companies might reduce.
Moreover, the software market’s revenues are projected to reach $650.70 billion in 2023. The industry is poised to witness significant growth in the foreseeable future, driven by the digital transformation of companies and cloud-based software, consistent automation of operations, and continued hybrid work culture.
Furthermore, the global software products market is projected to grow to $2.36 trillion in 2027, growing at a CAGR of 12%. Given the industry’s promising growth prospects, fundamentally sound software stocks GDDY and CVLT could be ideal buy-and-hold options this week.
GoDaddy Inc. (GDDY)
GDDY provides cloud-based solutions to individuals, businesses, and organizations to establish an online presence, connect with customers, and manage their ventures. It offers various solutions, including domains, hosting and presence, business applications and connected commerce, and access to third-party products and platforms.
On February 8, 2023, GDDY announced a restructuring plan aimed at driving over $100 million in annualized cost savings through a reduction in force, operating expense reductions, and integration of certain European brands and businesses within its Core Platform segment.
GDDY CFO Mark McCaffrey said, "We have taken actions to align our priorities and cost structure to continue to strong financial results with continued operating leverage while at the same time investing in deliver key long-term initiatives that will fuel future top-line growth."
GDDY’s total revenue increased 2% year-over-year to $1.04 billion in the fiscal fourth quarter (ended December 31, 2022). Its operating income grew 8.1% from the year-ago value to $134.90 million, while net income attributable to the company increased 7.3% year-over-year to $93.60 million over the period.
The company’s net income per share attributable to the company’s stockholders increased 15.4% from the year-ago value to $0.60. In addition, its NEBITDA came in at $266 million, up 4.7% from the same quarter last year.
The company raised its outlook for the fiscal year 2023. For the first quarter ending March 31, 2023, GDDY expects total revenues of approximately $1.03 billion to $1.05 billion and a normalized EBITDA margin of approximately 24% to 25%. In addition, for the fiscal year 2023, the company is targeting total revenue in the range of $4.25 billion to $4.33 billion, representing a 5% year-over-year growth.
Analysts expect GDDY’s EPS and revenue to increase 20.3% and 3.9% year-over-year to $0.49 and $1.04 billion, respectively, in the fiscal first quarter (ending March 2023).
The stock has gained 8% over the past nine months to close the last trading day at $76.93.
GDDY’s strong fundamentals 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 assess stocks by 118 different factors, each with its own weighting.
GDDY also has a B for Value and Quality. The stock is ranked #9 of 53 stocks in the Software - Business industry.
In addition to the POWR Ratings I’ve just highlighted, click here to see the GDDY ratings for Growth, Momentum, Stability, and Sentiment.
Commvault Systems, Inc. (CVLT)
CVLT provides data protection and information management software applications and related services globally. The company sells its products and services to large enterprises, small and medium-sized businesses, and government agencies.
On November 2, 2022, CVLT announced a new approach to data protection with the launch of Metallic File & Object Archive, a Data Management as a Service solution designed to lower storage costs while cost-effectively transforming how organizations navigate the world of Governance, Risk, and Compliance. This should enhance the company’s portfolio.
For the nine-month period that ended on December 31, 2022, CVLT’s total revenue increased 3.1% year-over-year to $581.11 billion. Its non-GAAP net income and non-GAAP EPS amounted to $83.94 million and $1.83, respectively, for the same period. In addition, its cash and cash equivalents stood at $273.47 million, representing a 17% increase year-over-year.
The consensus EPS estimate of $2.63 for the fiscal year 2024 represents a 6.5% improvement year-over-year. The consensus revenue estimate of $807.37 million for the next year indicates a 3.8% increase from the prior-year period. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of CVLT have gained 6.8% over the past six months to close the last trading session at $60.89.
CVLT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, translating to Buy in our proprietary rating system. It has an A grade for Quality and a B for Growth and Value. Within the Software - Application industry, it is ranked #6 out of 137 stocks.
To see the other ratings of CVLT for Momentum, Stability, and Sentiment, click here.
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GDDY shares were trading at $76.26 per share on Thursday afternoon, down $0.67 (-0.87%). Year-to-date, GDDY has gained 1.92%, versus a 3.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
2 Software Stocks to Buy This Week and Hold Onto Forever StockNews.com
