The software industry is benefiting from the growing shift to cloud-based solutions, automation in various sectors, and the adoption of digital products. The tech sector faced challenges over the past year due to rapid rate hikes, but with the Fed now indicating rate cuts next year, the tech industry, which includes software companies, stands to benefit.
Amid this backdrop, it could be wise to buy fundamentally strong software stocks Autodesk, Inc. (ADSK), Nutanix, Inc. (NTNX), and Smartsheet Inc. (SMAR).
Before diving deeper into the fundamentals of these stocks, let’s understand the software industry’s landscape better.
The growing digital transformation trend is driving heightened investments in advanced software solutions that focus on digitization, process automation, and data analytics for improved business insights and efficiency. Businesses are switching from traditional software applications to more cloud-based software applications as they ensure accessibility, flexibility, and scalability.
Worldwide revenue for enterprise applications is estimated to grow at a CAGR of 9.6% to reach $483.10 billion in 2027. Moreover, the integration of generative AI into these applications would boost the demand for enterprise applications.
Businesses are also investing heavily in cloud-based software services like Software-as-a-Service (SaaS) due to its asset-light nature, shift towards business outsourcing, ease of scalability, and increased flexibility. The global SaaS market is projected to grow at a CAGR of 18.7% to reach $908.21 billion by 2030.
Now, let's take a closer look at the fundamentals of the featured stocks.
Autodesk, Inc. (ADSK)
ADSK provides 3D design, engineering, and entertainment technology solutions worldwide. The company offers AutoCAD Civil 3D, BuildingConnected, AutoCAD, AutoCAD LT, CAM software, Fusion 360, and Industry Collections for professionals in various industries, including civil engineering, preconstruction, design, manufacturing, and media.
On November 13, 2023, ADSK introduced Autodesk AI, which is integrated into its Design and Make Platform, providing intelligent assistance and generative capabilities for enhanced creativity and problem-solving in diverse industries. The technology automates tasks, enhances creative exploration, and offers predictive insights, featuring capabilities.
In terms of the trailing-12-month levered FCF margin, ADSK’s 36.74% is 330.7% higher than the 8.53% industry average. Likewise, its 91.45% trailing-12-month gross profit margin is 87.1% higher than the 48.88% industry average. Furthermore, its 21.25% trailing-12-month EBIT margin is 344.2% higher than the 4.78% industry average.
ADSK’s total net revenues for the third quarter ended October 31, 2023, rose 10.5% year-over-year to $1.41 billion. Its non-GAAP income from operations increased 17.6% year-over-year to $547 million. Additionally, the company’s non-GAAP net income per share came in at $2.07, representing an increase of 21.8% year-over-year.
Street expects ADSK’s EPS and revenues for the quarter ending January 31, 2024, to increase 4.7% and 8.6% year-over-year to $1.95 and $1.43 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 26.7% year-to-date to close the last trading session at $236.71.
ADSK’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #20 out of 131 stocks in the Software - Application industry. It has an A grade for Quality. Click here to see ADSK’s Growth, Value, Momentum, Stability, and Sentiment ratings.
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.
On September 14, 2023, NTNX announced that Micron Technology selected its Cloud Platform for building a secure and resilient hybrid multi-cloud infrastructure in Micron's global manufacturing facilities. The platform aims to optimize resources, operationalize new cloud-ready applications, reduce costs, and provide flexibility in adjusting workloads between private and non-private cloud environments.
Rajiv Ramaswami, President and CEO at NTNX, said, “We see this win as a testament to the performance, scalability, and total cost of ownership benefits delivered by our platform and our ability to expand our footprint within some of the world’s largest companies.”
On August 31, 2023, NTNX announced that it had authorized the repurchase of up to $350 million of its Class A common stock, reflecting confidence in the company's long-term market opportunity and financial outlook.
In terms of the trailing-12-month gross profit margin, NTNX’s 82.94% is 69.7% higher than the 48.88% industry average. Likewise, its 15.59% trailing-12-month levered FCF margin is 82.7% higher than the 8.53% industry average. Additionally, its 0.79x trailing-12-month asset turnover ratio is 27.4% higher than the industry average of 0.62x.
For the fiscal first quarter, which ended October 31, 2023, NTNX’s total revenues rose 17.9% year-over-year to $511.05 million. Its non-GAAP gross profit increased 21% year-over-year to come in at $439.25 million. Also, the company’s non-GAAP net income and non-GAAP net income per share increased significantly over the prior-year quarter to $85.04 million and $0.29, respectively.
For the quarter ending January 31, 2024, NTNX’s revenue is expected to increase 12.9% year-over-year to $549.25 million. Its EPS for the quarter ending April 30, 2024, is expected to increase 221.4% year-over-year to $0.13. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 82.1% to close the last trading session at $46.28.
NTNX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment and Quality. It is ranked #15 in the Software - Application industry. To see NTNX’s Value, Momentum, and Stability ratings, click here.
Smartsheet Inc. (SMAR)
SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.
On October 23, 2023, SMAR introduced the Smartsheet Region in Australia, serving the Asia-Pacific-Japan (APJ) market. This expansion enables customers, including Fox Sports Australia and Wine Australia, to host their data onshore, meeting data residency requirements. The new region ensures enterprise-grade availability, scale, and compliance with various frameworks and regulatory standards.
In terms of the trailing-12-month levered FCF margin, SMAR’s 26.69% is 212.9% higher than the 8.53% industry average. Likewise, its 79.79% trailing-12-month gross profit margin is 63.2% higher than the 48.88% industry average. Additionally, its 0.82x trailing-12-month asset turnover ratio is 33.3% higher than the industry average of 0.62x.
For the third quarter, which ended October 31, 2023, SMAR’s total revenues rose 23.2% year-over-year to $245.92 million. Its non-GAAP operating income came in at $19.36 million, compared to a non-GAAP operating loss of $4.31 million.
For the same quarter, the company’s non-GAAP net income came in at $22.59 million, compared to a non-GAAP net loss of $1.89 million. Additionally, its non-GAAP EPS came in at $0.16, compared to a non-GAAP loss per share of $0.01 in the year-ago quarter.
Analysts expect SMAR’s EPS and revenue for the quarter ending January 31, 2024, to increase 158.7% and 20.3% year-over-year to $0.18 and $255.42 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 18.1% year-to-date to close the last trading session at $46.50.
SMAR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Quality. It is ranked #8 out of 21 stocks in the A-rated Software - SAAS industry. To see SMAR’s Value, Momentum, and Stability ratings, click here.
What To Do Next?
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ADSK shares were trading at $240.50 per share on Thursday morning, up $3.79 (+1.60%). Year-to-date, ADSK has gained 28.70%, versus a 25.18% 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.
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