The software industry's bright future is fueled by rising investments in enterprise cloud platforms, virtual networking, and security services across sectors like technology, education, and healthcare. This trend makes the software sector an attractive option for investors seeking growth opportunities.
Hence, amid software powering digital transformation, investors might consider buying high-growth software stocks like Nutanix, Inc. (NTNX), DocuSign, Inc. (DOCU), and Blackbaud, Inc. (BLKB) for solid gains in September.
The software industry is thriving, driven by rising automation standards, data trends, and the digitization of nearly all major processes. Adopting cloud services and integrating generative AI have transformed customer interactions and collaboration, driving significant growth prospects for the sector. As a result, the global business software market is expected to grow at a CAGR of 11.9% until 2030.
As digital businesses face challenges like supply chain attacks, IoT vulnerabilities, ransomware evolution, and AI cyberattacks, the demand for robust software security is surging. This sector's strong growth is driven by the need for readiness, flexibility, and rapid recovery. Consequently, the global cybersecurity industry is expected to reach $208.80 billion this year, marking a 10% year-over-year increase.
In addition, with easy accessibility to instant apps, wearable tech, e-commerce, and voice interfaces, the software market is growing substantially. It is projected to expand at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion. Considering these conducive trends, let’s analyze the fundamental aspects of the three software picks mentioned above.
Nutanix, Inc. (NTNX)
NTNX provides an enterprise cloud platform internationally. The company offers a hyper-converged infrastructure software stack, including Acropolis Hypervisor, flow virtual networking and security, Nutanix Kubernetes Engine, and Nutanix Cloud Clusters.
In terms of the trailing-12-month gross profit margin, NTNX’s 84.92% is 71.4% higher than the 49.56% industry average. Its 20.19% trailing-12-month levered FCF margin is 92.3% higher than the 10.50% industry average. Additionally, its 0.92x trailing-12-month asset turnover ratio is 47.9% higher than the industry average of 0.62x.
NTNX’s revenue grew at a CAGR of 15.5% over the past three years. Similarly, its levered FCF grew at a CAGR of 34.1% during the same period.
During the fourth quarter, which ended on July 31, 2024, NTNX’s total revenues amounted to $547.95 million, up 10.9% year-over-year. Its non-GAAP income from operations rose 10.8% over the prior-year quarter to $70.47 million.
In addition, its non-GAAP net income grew 12.1% year-over-year to $75.73 million, with a non-GAAP net income per share of $0.27, representing an increase of 12.5% from the year-ago value.
For the quarter ending October 31, 2024, NTNX’s revenue is expected to increase 11.9% year-over-year to $571.76 million. Its EPS for the quarter ending April 30, 2025, is expected to increase 12.6% year-over-year to $0.32. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 104.2% to close the last trading session at $62.90.
NTNX’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NTNX has a B grade for Growth, Sentiment, and Quality. It is ranked #20 out of 127 stocks in the Software – Application industry. To see NTNX’s Value, Momentum, and Stability ratings, click here.
DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions internationally. The company offers DocuSign e-signature solution that enables sending and signing of agreements on various devices.
On June 4, 2024, DOCU introduced a new Connector for SAP Ariba solutions. This tool automates workflows between DOCU's CLM and SAP Ariba, making the source-to-pay process easier. It will be available worldwide starting in September and will be featured at SAP Sapphire events.
In terms of the trailing-12-month net income margin, DOCU’s 3.81% is 4.3% higher than the 3.66% industry average. Likewise, its 3.42% trailing-12-month Capex / Sales is 65.1% higher than the 2.07% industry average. Furthermore, its 11.37% trailing-12-month Return on Common Equity is 145.2% higher than the 4.63% industry average.
DOCU’s total assets grew at a CAGR of 8.4% over the past three years. Its revenue grew at a CAGR of 29.9% over the past five years. Moreover, its levered FCF grew at a CAGR of 19.9% over the past three years.
DOCU’s total revenues for the first quarter that ended April 30, 2024, rose 7.3% year-over-year to $709.64 million. The company’s non-GAAP income from operations stood at $202.09 million, up 15% from the previous year’s quarter. Additionally, DOCU’s non-GAAP net income came in at $172.84 million and $0.82 per share, representing 15.1% and 13.9% year-over-year, respectively.
Analysts expect DOCU’s EPS and revenue for the quarter ended July 31, 2024, to increase 11.8% and 5.8% year-over-year to $0.80 and $727.84 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 36.4% to close the last trading session at $58.76.
DOCU’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value and Quality. It is ranked first out of 18 stocks in the A-rated Software – SaaS industry. Beyond what we stated above, we also have given DOCU grades for Momentum, Stability, and Sentiment. Get all the DOCU’s ratings here.
Blackbaud, Inc. (BLKB)
BLKB operates internationally as a cloud software solutions provider to non-profits, foundations, companies, education and healthcare institutions, and other social good entities.
On August 7, 2024, BLKB’s EVERFI announced new and updated digital resources for K-12 schools, including enhanced financial education courses and a new health and wellness program.
On July 29, 2024, BLKB announced the integration of Microsoft Azure AI and Power BI into Blackbaud Impact Edge, enhancing AI capabilities and reporting features. They also introduced Blackbaud Copilot, a generative-AI chatbot, within the platform.
In terms of the trailing-12-month EBITDA margin, BLKB’s 19.53% is 92.7% higher than the 10.14% industry average. Its 17.45% trailing-12-month levered FCF margin is 66.2% higher than the 10.50% industry average. Similarly, its 13.07% trailing-12-month EBIT margin is 164.6% higher than the 4.94% industry average.
BLKB’s revenue grew at a CAGR of 7.9% over the past three years. Its total assets grew at a CAGR of 16.9% over the past three years. Moreover, its EBIT grew at a CAGR of 57% over the past three years.
In the fiscal second quarter ended June 30, 2024, BLKB’s total revenue increased 6% year-over-year to $287.29 million. Its non-GAAP gross profit increased 8.2% year-over-year to $180.60 million. The company’s non-GAAP income from operations increased 16.2% year-over-year to $86.14 million.
In addition, the company’s non-GAAP net income grew 5.8% year-over-year to $55.67 million. Its earnings per share increased 10.2% year-over-year to $1.08.
Street expects BLKB’s revenue for the quarter ending September 30, 2024, to increase 5.8% year-over-year to $293.80 million. Its EPS for the quarter ending March 31, 2025, is expected to increase 12.9% year-over-year to $1.05. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 19.8% to close the last trading session at $82.89.
It’s no surprise that BLKB has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Growth and a B for Stability. Within the B-rated Software - Business industry, it is ranked #9 out of 39 stocks. To access the additional POWR Ratings of BLKB for Value, Momentum, Sentiment, and Quality, click here.
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NTNX shares were trading at $62.11 per share on Tuesday afternoon, down $1.08 (-1.71%). Year-to-date, NTNX has gained 30.24%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 High-Growth Software Stocks Powering Digital Transformation StockNews.com
