The Fed’s aggressive monetary policy to curb sky-high inflation, along with the geopolitical headwinds, hindered the software industry’s growth last year. However, the inflation is cooling, which might prompt the Fed to slow its aggressive monetary pace this year. This should boost the software industry.
Moreover, the overall enterprise IT spending is expected to remain stable this year. According to the latest forecast by Gartner Inc (IT), worldwide IT spending is projected to total $4.5 trillion in 2023, an increase of 2.4% from 2022.
Furthermore, the rapid adoption of emerging technologies, such as the Internet of Things (IoT) and Artificial Intelligence (AI), should boost the industry’s prospects. The global software market is expected to grow at a 7.2% CAGR until 2028.
Given this backdrop, hot software stocks GoDaddy Inc. (GDDY), F5, Inc. (FFIV), and Yext, Inc. (YEXT) might be ideal buys in 2023. Moreover, these stocks look relatively undervalued at their current prices.
GoDaddy Inc. (GDDY)
GDDY engages in the design and development of cloud-based technology products. The company provides a domain name registration product that engages customers at the initial stage of establishing a digital identity.
On December 6, 2022, GDDY unveiled its new solution, Managed WooCommerce Stores, which allows merchants to sell wherever customers shop through WordPress e-commerce stores. The new solution should boost the company’s top line.
GDDY’s trailing-12-month Price/Cash flow multiple of 13.44x is 30.5% lower than the 19.36x industry average. Also, its forward non-GAAP PEG of 0.77x is 52.2% lower than the 1.60x industry average.
GDDY’s total revenue grew 7.2% year-over-year to $1.03 billion in the third quarter of the fiscal year 2022, which ended September 30, 2022. Net income attributable to GDDY grew 2.4% year-over-year to $99.80 million, while net income attributable to GDDY per share grew by 8.6% from the prior-year quarter to $0.63.
GDDY’s EPS is expected to rise 23.6% year-over-year to $0.64 for the to-be-reported fiscal quarter ended December 2022. The company’s revenue for the same quarter is expected to increase 2.4% year-over-year to $1.04 billion. Additionally, GDDY has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 4.1% over the past six months to close its last trading session at $81.84. It has gained 9.5% over the past month.
GDDY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GDDY has a B grade for Quality. In the Software – Business industry, it is ranked #4 among 52 stocks.
In addition to the grades above, GDDY’s POWR Ratings for Growth, Momentum, Sentiment, and Stability can be viewed here.
F5, Inc. (FFIV)
FFIV provides multi-cloud application security and delivery solutions for the security, performance, and availability of network applications, servers, and storage systems. It also provides professional services, including consulting, training, installation, maintenance, and other technical support services.
On December 15, FFIV announced the launch of F5 Distributed Cloud App Infrastructure Protection (AIP), a cloud workload protection solution that expands application observability and protection to cloud-native infrastructures.
Kara Sprague, Executive Vice President and Chief Product Officer of the company, said, “The addition of AIP fills a critical need for customers as they look for ways to extend robust security controls to multiple cloud infrastructures where they run their modern applications.”
In terms of forward non-GAAP P/E, FFIV is currently trading at 12.92x, which is 35.5% lower than the 20.04x industry average. Its forward EV/EBIT multiple of 9.81x is 41.9% lower than the industry average of 16.88x
For the fiscal fourth quarter ended September 30, 2022, FFIV’s total net revenues increased 2.6% year-over-year to $700.03 million. The company’s non-GAAP net income and non-GAAP EPS came in at $157.65 million and $2.62, respectively.
Street revenue estimate of $700.67 million for the fiscal first quarter ended December 2022 indicates an improvement of 2% year-over-year. Also, its EPS will likely amount to $2.33 for the same quarter. Additionally, it has an impressive earnings surprise history, surpassing the consensus EPS and revenue estimates in all of the trailing four quarters.
The stock has gained 4.8% over the past month to close the last trading session at $147.77.
FFIV’s robust prospect is reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
FFIV has an A grade for Quality and a B grade for Value. It is ranked #2 in the same industry.
Click here to see the additional POWR Ratings for FFIV (Growth, Momentum, Sentiment, and Stability).
Yext, Inc. (YEXT)
YEXT organizes business facts to provide answers to consumer questions in North America and internationally. It serves the healthcare, retail, and financial services industries.
On January 12, 2023, YEXT announced its integration with Apple Business Connect. It is a new, free tool that will allow businesses all and sundry to claim their location place cards and design the way key information appears to more than a billion Apple users. The partnership is expected to boost YEXT’s portfolio significantly.
Its forward P/S of 2.05x is 29.9% lower than the 2.92x industry average. Also, the stock’s forward EV/Sales of 1.94x is 32% lower than the 2.85x industry average.
YEXT’s non-GAAP operating expenses decreased 11% to $72.10 million year-over-year in the third quarter that ended October 31, 2022. It reported a non-GAAP net income of $2.50 million, compared to the non-GAAP net loss of $5.50 million in the prior-year quarter.
Moreover, the company’s $2.69 million non-GAAP income from operations compares to a $4.90 million loss from operations in the same quarter in 2021.
Analysts expect YEXT’s revenue to increase 2.2% year-over-year to $399.32 million in the current fiscal year ending January 2023. Its EPS is expected to increase 70.7% year-over-year in the current year. It surpassed EPS estimates in all four trailing quarters.
The stock has gained 46.7% over the past six months, closing the last trading session at $6.69. It has gained 9% over the past month.
It is no surprise that YEXT has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
It has a grade B for Growth, Value, Sentiment, and Quality. YEXT is ranked first in the same industry.
Beyond the ratings stated above, we have also rated YEXT for Momentum and Stability. Get all YEXT ratings here.
GDDY shares were trading at $81.46 per share on Tuesday afternoon, down $0.38 (-0.46%). Year-to-date, GDDY has gained 8.87%, versus a 4.43% 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.
3 Hot Software Stocks to Buy for 2023 StockNews.com
