The Software-as-a-Service (SaaS) has been escalating due to the rush-to-digitize trend, as the remote and hybrid lifestyle incentivized companies to digitize their operations at a rapid pace. While concerns of a slowing economy loom, long-term trends playing out this year have helped most players remain optimistic about their prospects.
With this in mind, here are the top software stocks that should be considered with the growing demand: The Descartes Systems Group Inc. (DSGX), Vimeo, Inc. (VMEO), and MiX Telematics Limited (MIXT).
As inflationary pressures and macroeconomic factors weakened the consumer demand for tech companies, cost-cutting measures and bottom-line focus have helped revive better margins and profitability in 2023.
Moreover, with emerging trends and cutting-edge technology, it is certain that SaaS has become an increasingly viable choice for organizations in terms of accessibility, functionality, and versatility in a competitive business environment.
Given the ongoing digital transformation across every industry worldwide, SaaS is expected to maintain its growth trajectory in the near term. The global SaaS market is expected to reach $462.94 billion by 2028, growing at a CAGR of 18.5%.
The high demand for SaaS-based solutions due to the increasing need for remote working and hybrid work cultures, as well as the ongoing cloud transition, has been driving the demand. Furthermore, a GoodFirms survey revealed that 76.4% of organizations plan to increase their IT spending in 2023.
Given the solid prospects of the software industry, let’s look at the fundamentals of the stocks mentioned above.
The Descartes Systems Group Inc. (DSGX)
DSGX is a Canadian tech company providing cloud-based logistics and supply chain management business process solutions. Its offerings include B2B service communication, customs, and regulatory compliance, broker and forwarder enterprise systems, global trade intelligence, e-commerce shipping and fulfillment, transportation management and routing, mobile, and telematics.
Recently, the company announced that Etihad Cargo, the cargo and logistics division of Etihad Airways, had enhanced air shipment visibility using DSGX’s Internet of Things (IoT) Bluetooth Low Energy solution integrated with Jettainer’s unit load device (ULD) management services. The solution deployment could be beneficial for the company.
On April 20, DSGX acquired Localz, a technology platform to offer cost-efficient delivery services that transform the end customer experience. With this acquisition, the company aims to advance customer engagement capabilities in final-mile delivery solutions.
About the acquisition, Edward J Ryan, DSGX’s CEO, said, “End customers demand visibility and choice. Localz has a highly complementary solution to Descartes that dramatically improves the scheduling and day-of-service customer experience.”
DSGX’s revenues increased 11.3% year-over-year to $125.10 million for the fourth quarter, which ended January 31, 2023. Its income from operations grew 29.2% from the year-ago value to $33.60 million, while its net income improved 55.2% year-over-year to $29.80 million.
The company’s EPS increased 54.5% from the year-ago value to $0.34. In addition, its adjusted EBITDA came in at $55.40 million, up 10.6% from the previous-year quarter.
The consensus revenue estimate of $133.19 million for the fiscal first quarter (ended April 30, 2023) represents a 14.4% increase from the prior-year period. The consensus EPS estimate of $0.40 million for the to-be-reported quarter indicates a 43.2% increase year-over-year. In addition, the company surpassed the EPS estimates in three of the trailing four quarters.
The stock’s trailing-12-month net income margin of 21.04% is 779.6% higher than the 2.39% industry average. Its trailing-12-month ROCE of 9.74% compares with the 1.04% industry average.
Over the past year, the stock has gained 36.3% to close the last trading session at $78.27.
DSGX’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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DSGX has an A grade for Stability and a B for Sentiment and Quality. Within the Software – SAAS industry, it is ranked #6 of 28 stocks.
In addition to the grades I’ve just highlighted, view DSGX Ratings for Growth, Value, and Momentum here.
Vimeo, Inc. (VMEO)
VMEO provides online video software and services globally. The company offers video tools through a Software-as-a-Service model, which enables the users to create, collaborate, and communicate with video on a single platform.
During the first quarter that ended on March 31, 2023, VMEO’s revenue amounted to $103.58 million, while its total operating expenses decreased 23.3% year-over-year to $82.72 million. In addition, its adjusted EBITDA amounted to $3.20 million versus an adjusted EBITDA loss of $10.40 million.
Street expects VMEO’s revenue to amount to $408.36 million in the fiscal year 2023. It is expected to reach $432.61 million in 2024, reflecting an increase of 5.9% year-over-year. Moreover, the company topped the EPS and revenue estimates in each of the trailing four quarters.
VMEO’s trailing-12-month gross profit margin of 76.60% is 53.9% higher than the 49.77% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.71x is 47.7% higher than the industry average of 0.48x.
Shares of VMEO have gained 2.9% year-to-date to close the last trading session at $3.53.
VMEO’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It also has a B grade for Value, Sentiment, and Quality. The stock is ranked #5 of 28 stocks in the same industry. To see additional POWR Ratings of VMEO for Growth, Momentum, and Stability, click here.
MiX Telematics Limited (MIXT)
MIXT is a South-Africa-based fleet and mobile asset management solutions provider. Its solutions include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now.
On March 30, the company announced that it had signed more than 3,000 new subscribers in Latin America in the last two quarters while accelerating its customer growth.
MIXT’s total revenue increased 4.4% year-over-year to $37.81 million in the fiscal 2023 third quarter ended December 31, 2022. Its gross profit grew 8.4% from the year-ago value to $24.35 million, while its income from operations improved 56.1% year-over-year to $4.03 million.
Adjusted net income came in at $2.28 million and $0.10 per ADS, reflecting a 41.3% and 42.8% rise from the prior-year quarter. In addition, its adjusted EBITDA stood at $8.41 million, up 18.2% year-over-year.
Analysts expect MIXT’s EPS and revenue to increase 40.1% and 6.4% year-over-year to $0.14 and $38.42 million, respectively, in the fourth quarter (ended March 31, 2023). Moreover, it surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
In terms of trailing-12-month MIXT’s ROTA of 3.23% is 564.9% higher than the 0.49% industry average. Likewise, its trailing-12-month ROCE of 4.97% is 378.1% higher than the industry average of 1.04%.
The stock has gained 5.1% year-to-date to close the last trading session at $7.39.
It’s no surprise that MIXT has an overall rating of B, which translates to Buy in our POWR Ratings system. In addition, MIXT has a B grade for Sentiment. Also, it is ranked #2 of 28 stocks in the same industry.
Click here to see MIXT ratings for Growth, Value, Momentum, Stability, and Quality.
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DSGX shares were trading at $78.50 per share on Thursday afternoon, up $0.23 (+0.29%). Year-to-date, DSGX has gained 12.71%, versus a 8.00% 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.
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