Solid demand for software solutions among businesses and individuals positions the industry for robust long-term growth, with the dominance of enterprise software. Software providers benefit primarily from the increased automation of business processes across end-use industries, the rising volume of enterprise data, and the rapid adoption of cutting-edge technologies.
Given the industry’s tailwinds, fundamentally sound software stocks Clear Secure, Inc. (YOU), American Software, Inc. (AMSWA), and Red Violet, Inc. (RDVT) could be ideal investments for substantial returns.
Demand for enterprise software and services is expected to be fuelled by the significant increase in the volume of enterprise data and rapidly growing automation of business processes across several end-use industries, including manufacturing, retail, automotive, healthcare, and more.
In addition, increased deployment of business software across IT infrastructure to provide better decision-making, enhanced profitability, efficient inventory cost reduction, and improved market position for businesses will likely benefit the business software market.
According to a report by Grand View Research, the global business software and services market is projected to reach $1.15 trillion by 2030, expanding at a CAGR of 11.9% during the forecast period. Meanwhile, the U.S. business software and services market is expected to grow at a CAGR of 10.7% from 2023 to 2030.
Cloud computing was already flourishing before 2020, but cloud adoption soared considerably in the following two years due to the surge in remote work and other digital transformation initiatives among enterprises. The cloud has become a backbone for various U.S. companies. As per research done by Zippia, nearly 94% of enterprises use cloud services.
Also, approximately 67% of enterprise infrastructure is now cloud-based.
The software industry is further well-positioned to benefit from the increasing adoption of cutting-edge technologies such as Artificial Intelligence (AI), cybersecurity, machine learning, the Internet of Things (IoT), blockchain, Augmented Reality & Virtual Reality (AR&VR), metaverse, and more.
According to the latest forecast by Gartner, global software spending is expected to rise 12.9% year-over-year to $916.24 billion this year and 13.8% year-over-year to $1.04 trillion in 2024.
Given the industry’s robust long-term outlook, investing in fundamentally strong software stocks YOU, AMSWA, and RDVT could be wise now.
Let’s discuss the fundamentals of these stocks in detail:
Clear Secure, Inc. (YOU)
YOU operate as a secure identity platform, a multi-layered infrastructure consisting of front-end, including enrolment, verification, and linking under the CLEAR brand name. It also offers CLEAR Plus, a consumer aviation subscription service and CLEAR mobile app for enrolling new members and enhancing the experience for existing members.
On November 14, YOU launched its identity verification technology at Rhode Island T.F. Green International Airport’s (PVD) main terminal. This will bring frictionless and predictable travel experiences to Rhode Island. The launch will create 28 jobs and generate nearly $1.50 million annually in local economic impact.
The new launch represents continued growth in YOU’s national footprint, serving 55 airports and approximately 19 million Members.
On October 5, YOU expanded into financial services through its reusable KYC solution with a fast, frictionless consumer experience. The solution will help financial services companies successfully convert prospects into customers – combatting traditional drop-off at onboarding due to friction.
For the third quarter that ended September 30, YOU’s revenue grew 38.4% year-over-year to $160.39 million. Its operating income was $19.28 million, compared to an operating loss of $65.70 million in the prior year’s quarter. Its net income was $26.86 million, or $0.17 per common share, Class A versus net loss of $65.10 million, or $0.44 per share a year ago, respectively.
The company’s cash and cash equivalents as of September 30, 2023, were $63.52 million, compared to $38.93 million as of December 31, 2022. Its total assets stood at $1.06 billion, compared to $1.04 billion as of December 31, 2022.
Street expects YOU’s EPS and revenue for the fourth quarter (ending December 2023) to increase 10.7% and 29.9% year-over-year to $0.15 and $166.65 million, respectively. Also, the company topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of YOU have gained 17.5% over the past month to close the last trading session at $20.26.
YOU’s robust outlook is reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has a B grade for Growth and Value. It is ranked #7 out of 22 stocks in the B-rated Software - Security industry.
Click here to access additional YOU ratings for Stability, Quality, Sentiment and Momentum.
American Software, Inc. (AMSWA)
AMSWA develops, markets, and supports computer business application software products internationally. The company operates through Supply Chain Management (SCM); Information Technology Consulting (IT Consulting); and Other segments. It offers network optimization, integrated business planning, IT staffing, consulting services, etc.
On November 16, AMSWA announced that its wholly-owned subsidiary, Logility, Inc., will sell its Transportation Rating Solutions (TRS) business, which comprises on-premise freight shipping solutions for LTL, truckload, and rail shipments within North America, to FOG Software Group, a division of Vela Software.
AMSWA is divesting TRS to focus on its core supply chain planning business, allowing Logility to expand its AI-first supply chain management platform. This divestment aligns with the company’s commitment to AI-first supply chain technology solutions.
On September 25, AMSWA announced that it had entered into a Rule 10b5-1 trading plan to facilitate stock buybacks under an existing share repurchase program previously approved by the Board of Directors comprising 946,321 shares available for repurchase.
As per Allan Dow, CEO of American Software, “We remain committed to strategically deploying capital to create long-term shareholder value.”
AMSWA’s revenue and EBITDA have grown at respective CAGRs of 1.8% and 11% over the past three years. The company’s EBIT has increased 11.8% over the same timeframe, while its net income and EPS have improved at CAGRs of 20.1% and 18.8%, respectively.
For the fiscal 2024 second quarter ended October 31, 2023, AMSWA reported total revenues of $25.69 million. Recurring revenue streams for Maintenance and Cloud Subscriptions and Maintenance revenues were $21.50 million and $8.10 million, respectively. Its adjusted EBITDA from continuing operations came in at $4.09 million.
In addition, the company’s net earnings rose 12.3% year-over-year to $2.36 million.
Analysts expect AMSWA’s revenue and EPS for the next year (ending April 2025) to increase 1.6% and 16.4% year-over-year to $103.78 million and $0.43, respectively. Moreover, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimate in three of the trailing four quarters.
AMSWA’s shares have declined 9.6% over the past three months to close the last trading session at $9.70.
AMSWA’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Value. Within the Software - Application industry, AMSWA is ranked #46 of 132 stocks.
Click here to access additional ratings of AMSWA for Growth, Momentum, Stability, Quality and Sentiment.
Red Violet, Inc. (RDVT)
RDVT operates as a software and services company. The company specializes in proprietary technologies and applying analytical capabilities for delivering identity intelligence. It provides idiCORE, an investigative solution, and FOREWARN, an app-based solution. RDVT serves retail, financial services, healthcare, insurance, and telecommunication companies.
On November 8, YOU announced a quarterly dividend of $0.09 per share, an increase from $0.07 last quarter, and a special cash dividend of $0.55 per share, each paid on November 22, 2023, to holders of record of Class A and Class B Common Stock as of November 16, 2023.
The company’s Board of Directors also authorized a $100 million rise to its existing Class A Common Stock share repurchase program, resulting in an aggregate remaining authorization of nearly $128 million. This reflects YOU’s commitment to return value to its shareholders via dividends and share repurchases.
On October 27, FOREWARN®, LLC, RDVT’s company, partnered with Georgia Multiple Listing Service (GAMLS) to offer FOREWARN® services to its 52,000+ MLS subscribers it serves throughout Georgia to promote proactive real estate agent safety.
“FOREWARN fits perfectly with our mission of providing the most value possible for our subscribers,” said Richard Boone, CEO of Georgia Multiple Listing Service. On September 26, FOREWARN®, LLC and Florida Realtors® joined forces to promote and enhance the safety of Realtors® while working to help buyers and sellers across Florida. This might help deliver a proactive safety solution to the real estate industry and address inherent risks.
RDVT’s revenue has grown at a CAGR of 18.8% over the past three years. The company’s total assets and levered free cash flow have improved at CAGRs of 23.1% and 27.7%, respectively.
In the third quarter that ended September 30, 2023, RDVT’s total revenue increased 5.4% year-over-year to $15.84 million. Its adjusted gross profit grew 4.7% year-over-year to $12.52 million. Its adjusted EBITDA rose 3.4% from the year-ago value to $5.26 million. Also, its free cash flow was $3.33 million, up 292.2% from the previous year’s quarter.
Furthermore, the company’s net income was $12.50 million, compared to $2.26 million in the previous year’s quarter. Its earnings per share came in at $0.87, an increase of 443.8% from the prior year’s quarter.
RDVT’s stock gained 9.6% over the past month and 6.6% in the last six months to close the last trading session at $21.28.
RDVT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a B grade for Stability and Quality. It is ranked #15 of 44 stocks within the B-rated Software - Business industry.
To see additional POWR Ratings of RDVT for Sentiment, Growth, Value, and Momentum, Click here.
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YOU shares were trading at $20.14 per share on Monday morning, down $0.12 (-0.59%). Year-to-date, YOU has declined -23.94%, versus a 20.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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