Despite the software industry facing challenges due to macroeconomic turmoil, businesses digitally altering their operations is driving demand for cloud software, business intelligence software, and other types of software. Therefore, investors could buy fundamentally strong software stocks VMware, Inc. (VMW), F5, Inc. (FFIV), and Sapiens International Corporation N.V. (SPNS).
The expansion of the software-business market is boosted by the rising need for high-speed data networks and the substantial presence of software vendors.
Business software and services allow companies to accomplish various business requirements, such as supply chain mapping, supplier risk assessment, transaction traceability, fraud detection, resilience planning, real-time visualization, and consumer-facing transparency.
According to Statista, the worldwide software market revenues are expected to grow at a CAGR of 5.4%, resulting in a market volume of $858.10 billion. In addition, businesses are increasingly adopting software-based cloud solutions for their operations.
According to Gartner, worldwide government IT spending is forecast to total $589.80 billion in 2023, an increase of 7.6% from 2022. The software segment is expected to see double-digit growth this year as enterprises prioritize spending to capture competitive advantages through increased productivity, automation, and other software-driven transformation initiatives.
Given these factors, investors could look to buy the featured software stocks. Let’s take a closer look at their fundamentals.
VMware, Inc. (VMW)
VMW provides software solutions in modern applications, cloud management and infrastructure, networking, security, and digital workspaces worldwide. It offers VMware multi-cloud solutions, including VMware vSphere, vSAN and VxRail, vRealize Cloud Management solutions, and VMware Cloud Foundation.
On June 29, 2023, in conjunction with Confidential Computing Summit 2023, VMW announced that it is joining forces with AMD, Samsung, and members of the RISC-V Keystone community to simplify the development and operations of confidential computing applications.
These industry and community leaders will work together to ease the transition to practical, confidential computing by collaborating on and contributing to the open-source Certifier Framework for Confidential Computing project.
In terms of the trailing-12-month Return on Total Capital, VMW’s 10.29% is 518.2% higher than the 1.66% industry average. Its 9.57% trailing-12-month net income margin is 459% higher than the 1.71% industry average. Likewise, its 178.02% trailing-12-month Return on Common Equity is significantly higher than the 0.23% industry average.
VMW’s total revenue increased 6.1% year-over-year to $3.28 billion for the first quarter that ended May 5, 2023. Its non-GAAP operating income increased 6.2% year-over-year to $819 million. Its non-GAAP net income increased 18.8% year-over-year to $644 million. Additionally, the company’s non-GAAP EPS came in at $1.49, representing a 16.4% increase year-over-year.
VMW’s EPS and revenue for the quarter ending October 31, 2023, are expected to increase 12.7% and 6.5% year-over-year to $1.66 and $3.42 billion, respectively. Over the past nine months, the stock has gained 47% to close the last trading session at $155.74.
VMW’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value and Stability. Within the Software - Business industry, it is ranked #3 of 49 stocks. For other POWR Ratings of VMW for Growth, Momentum, and Sentiment, click here.
F5, Inc. (FFIV)
FFIV provides multi-cloud application security and delivery solutions for the security, performance, and availability of network applications, servers, and storage systems. It also provides a range of professional services, including consulting, training, installation, maintenance, and other technical support services.
In terms of the trailing-12-month Return on Total Capital, FFIV’s 8.74% is 425.3% higher than the 1.66% industry average. Its 11.74% trailing-12-month net income margin is 585.7% higher than the 1.71% industry average. Likewise, its 12.74% trailing-12-month Return on Common Equity is significantly higher than the 0.23% industry average.
For the fiscal second quarter ended March 31, 2023, FFIV’s total net revenues increased 10.9% year-over-year to $703.18 million. The company’s non-GAAP net income and non-GAAP EPS came in at $153.63 million and $2.53, respectively. Its gross profit rose 7.8% year-over-year to $547.52 million.
Analysts expect FFIV’s EPS and revenue for the quarter ending September 30, 2023, to increase 22.4% and 0.8% year-over-year to $3.21 and $705.59 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 6.6% to close the last trading session at $148.32.
FFIV’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy.
It is ranked #1 in the same industry. In addition, it has an A grade for Quality and a B for Growth and Value. Click here to see the other ratings of FFIV for Momentum, Stability, and Sentiment.
Sapiens International Corporation N.V. (SPNS)
Headquartered in Holon, Israel, SPNS provides software solutions for the insurance and financial services industries worldwide. It offers the platforms Sapiens CoreSuite, Sapiens IDITSuite, Sapiens UnderwritingPro, Sapiens ApplicationPro, Sapiens IllustrationPro, and Sapiens ConsolidationMaster.
In terms of the trailing-12-month Return on Total Capital, SPNS’s 8.17% is 390.9% higher than the 1.66% industry average. Its 10.97% net income margin is 540.8% higher than the 1.71% industry average. Likewise, its 12.65% trailing-12-month Return on Common Equity is significantly higher than the industry average of 0.23%.
For the fiscal quarter ended March 31, 2023, SPNS’s non-GAAP revenue increased 6% year-over-year to $124.80 million. The company’s non-GAAP gross profit increased 6.5% year-over-year to $56.40 million. Its non-GAAP operating income increased 8.4% year-over-year to $22.50 million.
SPNS’s EPS and revenue for the quarter ended June 30, 2023, increased to 19.5% and 6.4% year-over-year to $0.32 and $126.19 million, respectively. Over the past nine months, the stock has gained 45.8% to close the last trading session at $25.90.
SPNS’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy. It is ranked #2 in the same industry. In addition, it has a B grade for Growth, Value, and Stability.
To see the other ratings of SPNS for Momentum, Sentiment, and Quality, click here.
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VMW shares were trading at $156.12 per share on Thursday morning, up $0.38 (+0.24%). Year-to-date, VMW has gained 27.17%, versus a 18.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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