The global tech industry is set for continued growth due to increasing management needs, expanded marketing, and the demand for scalable, secure, advanced software solutions. As enterprises invest more in software, investors seeking strong returns might consider buying solid software stocks Atlassian Corporation (TEAM), AppLovin Corporation (APP), and Nutanix, Inc. (NTNX), which are poised for over 45% EPS growth this year.
Despite recent market fluctuations, database and customer experience software are growing rapidly. The software market is set to grow at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion, driven by e-commerce expansion, hybrid work demand, and increased smartphone use. Statista predicts that revenue in the software market is projected to reach $698.80 billion in the current year.
Moreover, the software sector shows promise due to trends including increased consumer spending, new monetization paths in social apps, AI-driven experiences, personalized interactions, channel diversification, and a focus on user privacy due to regulatory changes. Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 27% returns over the past year.
Considering these conducive trends, let’s assess the fundamentals of the Software - Application picks, starting with the third choice.
Stock #3: Atlassian Corporation (TEAM)
Headquartered in Sydney, Australia, TEAM designs, develops, licenses, and maintains various software products globally. The company’s offerings include Jira Software, Jira Work Management, and Confluence.
In terms of the trailing-12-month gross profit margin, TEAM’s 81.86% is 66% higher than the 49.30% industry average. Its 29.95% trailing-12-month levered FCF margin is 204% higher than the 9.85% industry average. Likewise, the stock’s 0.94x trailing-12-month asset turnover ratio is 50.7% higher than the 0.62x industry average.
TEAM’s total revenues for the third quarter ended March 31, 2024, increased 29.9% year-over-year to $1.19 billion. Its non-GAAP gross profit increased 29.1% over the prior-year quarter to $1.01 billion. The company’s non-GAAP net income rose 68.5% year-over-year to $232.50 million. Additionally, its non-GAAP net income per share grew 64.8% year-over-year to $0.89.
Street expects TEAM’s EPS and revenue for the quarter ended June 30, 2024, to increase 6.6% and 20.4% year-over-year to $0.61 and $1.13 billion, respectively. Moreover, TEAM’s EPS and revenue for ongoing year are expected to increase 50% and 23.3% year-over-year to $2.88 and $4.36 billion, respectively.
TEAM surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 7.3% to close the last trading session at $176.88.
TEAM’s POWR Ratings reflect robust prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #36 out of 133 stocks in the Software - Application industry. It has an A grade for Growth, Sentiment, and Quality. Click here to see TEAM’s Value, Momentum, and Stability ratings.
Stock #2: AppLovin Corporation (APP)
APP engages in building a software-based platform for advertisers to enhance the marketing and monetization of their content internationally. It operates through two segments: Software Platform and Apps.
In terms of the trailing-12-month levered FCF margin, APP’s 28.63% is 190.6% higher than the 9.85% industry average. Similarly, its 44.70% trailing-12-month Return on Common Equity is 953.4% higher than the industry average of 4.24%. APP’s 0.65x trailing-12-month asset turnover ratio is 4.4% higher than the industry average of 0.62x.
For the first quarter that ended March 31, 2024, APP’s revenue increased 47.9% year-over-year to $1.06 billion. Its income from operations grew 456.2% year-over-year to $339.56 million.
For the same quarter, its net income came in at $236.18 million, compared to a loss of $4.52 million in the year-ago quarter. Also, its net income per share came in at $0.70, compared to a loss per share of $0.01 in the previous year’s quarter.
For the quarter ended June 30, 2024, APP’s EPS and revenue are expected to increase 230% and 44% year-over-year to $0.73 and $1.08 billion, respectively. Similarly, for the current year, APP’s EPS and revenue are expected to increase 201.1% and 33.2% year-over-year to $2.95 and $4.37 billion, respectively.
APP surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, APP’s stock has gained 223.7% to close the last trading session at $83.22.
APP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Quality and a B for Sentiment. Within the same industry, it is ranked #22. To access the additional POWR Ratings of APP for Value, Momentum, and Stability, click here.
Stock #1: 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 May 21, 2024, NTNX announced a collaboration with NVIDIA to integrate NVIDIA NIM inference microservices with Nutanix GPT-in-a-Box 2.0, simplifying the deployment of generative AI applications. This integration aims to help enterprises adopt scalable, secure AI solutions more efficiently across the enterprise and at the edge.
On the same date, NTNX announced a collaboration with Dell Technologies to offer joint hybrid multicloud solutions combining Dell's hardware with Nutanix software. This partnership aims to enhance IT operations, flexibility, and resiliency for enterprise customers.
In terms of the trailing-12-month gross profit margin, NTNX’s 84.55% is 71.5% higher than the 49.30% industry average. Its 12.51% trailing-12-month levered FCF margin is 27% higher than the 9.85% industry average. Additionally, its 0.81x trailing-12-month asset turnover ratio is 30.5% higher than the industry average of 0.62x.
NTNX’s revenues for the third quarter, which ended on April 30, 2024, amounted to $524.58 million, up 16.9% year-over-year. Its non-GAAP operating income rose 326.3% over the prior-year quarter to $73.28 million. In addition, its non-GAAP net income grew 292.5% year-over-year to $85.25 million, with a non-GAAP EPS of $0.28, representing an increase of 250% from the year-ago value.
Analysts expect NTNX’s EPS for the current year to increase 104.4% year-over-year to $1.23. Its EPS for the quarter ending July 31, 2024, is expected to grow 8.7% year-over-year to $537.30 million. In addition, its revenue for the same fiscal year is expected to increase 14.8% year-over-year to $2.14 billion.
The company surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 109.8% over the past year to close the last trading session at $56.85.
NTNX’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 Growth and a B for Sentiment and Quality. Within the Software – Application industry, it is ranked #18. To see NTNX’s Value, Momentum, and Stability ratings, click here.
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TEAM shares were trading at $177.51 per share on Monday afternoon, up $0.63 (+0.36%). Year-to-date, TEAM has declined -25.37%, versus a 15.43% 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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