Due to increasing digitization and evolving technology, the software industry is expected to thrive in the coming years. Companies that adapt, innovate, and provide value-added solutions will likely capitalize on opportunities.
Given this backdrop, investors could consider adding high-growth software stocks, such as Autodesk, Inc. (ADSK), Workday, Inc. (WDAY), and Intuit Inc. (INTU), to their watchlists for big returns. Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the software industry’s prospects.
The rapid advancement of technology and increasing digitalization across various industries is driving the demand for innovative and specialized software applications. Gartner predicts a 13.9% increase in software spending in 2024, reaching $1.04 trillion, as companies seek customizable and scalable applications to streamline their operations, improve efficiency, and enhance customer experiences.
The proliferation of mobile devices and the rise of cloud computing have created new opportunities for software application developers to create cutting-edge applications that can be accessed anytime, anywhere. The demand for mobile apps, SaaS solutions, and other cloud-based applications is only expected to increase in the future.
The demand for software applications leveraging data analytics, AI, machine learning, and IoT is growing rapidly, driven by the need for business growth and competitive advantage.
Additionally, remote work practices have increased the demand for communication tools, collaboration platforms, and productivity-enhancing software. The U.S. application development software market is forecasted to reach $113.70 billion by 2028, growing at a CAGR of 5.7%.
In light of these encouraging trends, let's examine the fundamentals of the three Software - Application stock picks, starting with the third in line.
Stock #3: Autodesk, Inc. (ADSK)
ADSK provides 3D design, engineering, and entertainment technology solutions worldwide. The company offers AutoCAD Civil 3D, Autodesk Build, Revit, Autodesk BIM Collaborate Pro, and BuildingConnected.
On May 21, 2024, ADSK announced that it acquired Wonder Dynamics, makers of Wonder Studio, which is highly compatible with other popular 3D tools. ADSK's acquisition of Wonder Dynamics gave more creators the ability to add 3D animated characters to their projects and stories while minimizing the learning curve and automating typically complex and time-consuming processes.
On April 24, 2024, ADSK announced an interoperability agreement with the Nemetschek Group to improve open collaboration and efficiencies for the architecture, engineering, construction and operations, and media and entertainment industries.
The agreement enhanced the existing interoperability between their industry cloud and desktop products and improved the fluent exchange of information across solutions.
Over the past three and five years, ADSK’s revenue grew at CAGRs of 13.2% and 15.5%, respectively. Its EBITDA grew at a CAGR of 20.7% over the past three years.
ADSK’s total net revenue for the fiscal first quarter that ended April 30, 2024, amounted to $1.42 billion, up 11.7% year-over-year. Its non-GAAP income from operations rose 21.3% from the year-ago quarter to $490 million. The company’s net income and non-GAAP net income per share stood at $252 million and $1.87, up 56.5% and 20.6% from the prior-year quarter, respectively.
For the quarter ending July 31, 2024, ADSK’s revenue and EPS are expected to increase 10.3% and 4.9% year-over-year to $1.48 billion and $2, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 18.4% over the past year to close the last trading session at $239.17.
ADSK’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ADSK has an A grade for Quality and a B for Growth and Sentiment. It is ranked #29 out of 134 stocks in the Software - Application industry. Click here to see ADSK’s Value, Momentum, and Stability ratings.
Stock #2: Workday, Inc. (WDAY)
WDAY provides enterprise cloud applications in the United States and internationally. Its applications help its customers to plan, execute, analyze, and extend to other applications and environments to manage their business and operations.
On June 17, 2024, WDAY partnered with SkillStorm to deliver Workday-certified technical consultants across a range of business domains. This partnership was designed to help WDAY customers access purpose-built teams of skilled and certified WDAY resources, helping increase productivity.
On June 5, 2024, WDAY announced Built on Workday, a new program that enables partners to easily build, centrally manage, and market trusted finance and HCM apps that extend the power of the WDAY platform.
With a "build once, distribute to many" approach, this program enabled partners to accelerate their revenue without scaling costs while empowering customers to discover an entirely new range of solutions tailored to their specific needs.
Over the past three and five years, WDAY’s revenue grew at CAGRs of 19.1% and 20.1%, respectively. Its levered FCF grew at a CAGR of 9.3% over the past three years.
For the first quarter that ended April 30, 2024, WDAY’s total revenues and free cash flows stood at $1.99 billion and $291 million, up 18.2% and 33.5% year-over-year, respectively. Its net income came in at $107 million. For the same quarter, its non-GAAP net income per share increased 30.8% from the year-ago quarter to $1.74.
Street expects WDAY’s EPS and revenue for the quarter ending July 31, 2024, to increase 14.6% and 15.9% year-over-year to $1.64 and $2.07 billion, respectively. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters. The stock has declined 1% over the past month to close the last trading session at $218.70.
WDAY’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
WDAY has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #26. Get WDAY’s Value, Momentum, Stability, and Sentiment ratings here.
Stock #1: Intuit Inc. (INTU)
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in four segments: Small Business & Self-Employed; Consumer; Credit Karma; and ProTax.
On June 20, 2024, INTU partnered with the Los Angeles Urban League for the expansion of the Intuit IDEAS Program, which will expand to a total of 100 small business owners, offering them free access to INTU products, services, business counseling, and coaching.
On June 13, 2024, INTU announced that it signed an agreement to acquire technology from leading mobility risk intelligence provider Zendrive. Certain Zendrive employees joined Credit Karma to accelerate innovation and adoption of its usage-based auto insurance product, Karma Drive.
Over the past three and five years, INTU’s revenue grew at CAGRs of 21.2% and 18.9%, respectively. Its EBIT grew at a CAGR of 13.5% over the past three years.
INTU’s total net revenue for the fiscal third quarter that ended April 30, 2024, increased 11.9% year-over-year to $6.74 billion. Its non-GAAP operating income rose 10.5% from the prior-year quarter to $3.71 billion. In addition, its non-GAAP net income stood at $2.80 billion, up 11.1% from the year-ago quarter. Also, its non-GAAP net income per share grew 10.8% year-over-year to $9.88.
Analysts expect INTU’s revenue and EPS for the quarter ending July 31, 2024, to increase 13.9% and 12.7% year-over-year to $3.09 billion and $1.86, respectively. The company surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 37.8%, closing the last trading session at $623.88.
INTU’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #24 in the Software - Application industry. Click here for the additional POWR Ratings of INTU (Value, Momentum, and Stability).
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INTU shares were trading at $626.08 per share on Tuesday afternoon, up $2.20 (+0.35%). Year-to-date, INTU has gained 0.46%, versus a 14.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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