2024 Strategies: Buy or Hold for 3 Software Stocks?

Following the pandemic, there has been an expeditious shift toward digital transformation. The extensive reliance of both individuals and businesses on software solutions has propelled the industry into a realm of promising prospects. Furthermore, the anticipated surge in demand for AI-driven software solutions contributes to the momentum of this expansion.

Given the backdrop, scooping up the shares of Mitek Systems, Inc. (MITK) and Kaltura, Inc. (KLTR) could be wise. However, considering the mixed fundamentals of Endava plc (DAVA), investors should monitor the stock for a more opportune entry point.

Before we dig deeper into the fundamentals of the aforementioned stocks, let’s take a peek into the factors catalyzing future growth within the industry.

The global software market is anticipated to hit $1.79 trillion by 2032, witnessing an impressive CAGR of 11.7% from 2023 to 2032. The surge in demand for advanced mobile applications and cloud-based solutions has been the driving force for the market growth. Moreover, the incorporation of generative AI into the creation of software applications is positioned to advance the industry's growth.

Generative AI amplifies the software application's capacity to learn, adapt, generate innovative ideas, and improve automated, dynamic decision-making processes, potentially revolutionizing the experiences of customers, users, product owners, architects, and developers.

The market size for generative AI in software development is expected to exceed $169.20 billion by 2032, growing at a robust CAGR of 21.4% spanning 2023 to 2032.

Meanwhile, the Software as a Service (SaaS) model has undergone a notable surge in recent years, restructuring the landscape of software delivery and consumption. The global SaaS market is projected to hit $908.21 billion by 2030, exhibiting a CAGR of 18.7% from 2022 to 2030.

On top of it, Gartner anticipates robust double-digit growth in the software segment this year, driven primarily by heightened investments in cloud technologies. The projected outlook for 2024 signals a substantial increase in global software spending, reaching $1.04 trillion, reflecting a noteworthy year-on-year surge of 13.8%.

In light of these encouraging forecasts, let’s dive deeper into the fundamentals of the featured software stocks in detail:

Stocks to Buy:

Mitek Systems, Inc. (MITK)

MITK provides mobile image capture and digital identity verification solutions worldwide. Its product portfolio includes Mobile Deposit, Mobile Verify, Mobile Fill, and MiSnap for remote depositing checks, identity verification, and form fill completion.

On November 28, 2023, MITK revealed its strategic collaboration with Abrigo, a top-tier provider of compliance, credit risk, and lending solutions for financial institutions.

This collaboration between Abrigo and MITK is set to facilitate seamless product integration, allowing an expanded array of financial institutions to harness the cutting-edge fraud prevention solutions offered by MITK. The official launch and availability are expected to be announced in early 2024.

In the same month, MITK was recognized as a Representative Vendor in Gartner’s 2023 Market Guide for User Authentication. Commenting on this, MITK’s Identity SVP, Chris Briggs, said, "We are glad to see Mitek recognized among other vendors in this Market Guide. We believe this is a testament to our ongoing commitment to innovation."

MITK’s trailing-12-month EBITDA margin of 27% is 183.8% higher than the industry average of 9.42%. Likewise, its trailing-12-month gross profit margin of 87.39% is 77.9% higher than the 49.14% industry average. Furthermore, the stock’s 5.27% trailing-12-month net income margin is 123.6% higher than the 2.36% industry average.

In the fiscal year that ended September 30, 2023, MITK’s total revenue increased 19% year-over-year to $171.90 million. Its non-GAAP net income amounted to $43.79 million, up 10.5% from the year-ago value. In addition, its non-GAAP net income per share rose 8% year-over-year to $0.94.

For the fiscal year ending September 2024, MITK’s revenue and EPS are projected to increase 5.6% and 14.4% year-over-year to $181.53 million and $1.08, respectively. Moreover, the company has an excellent surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.

The stock soared 13.3% over the past three months to close the last trading session at $12.19.

MITK’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

It has a B grade for Value and Quality. In the 133-stock Software - Application industry, it is ranked #18. Click here to see MITK’s ratings for Growth, Momentum, Stability, and Sentiment.   

Kaltura, Inc. (KLTR)

KLTR provides various Software-as-a-Service products and solutions and a Platform-as-a-Service in the United States, Europe, the Middle East, Africa, and internationally. The company operates through two segments, Enterprise, Education, and Technology (EE&T); and Media and Telecom (M&T).

On September 11, 2023, KLTR revealed that Bouygues Telecom, a prominent French multiservice provider boasting over 4.80 million subscribers, chose KLTR’s technology to drive its upcoming IPTV and OTT digital TV service. This decision is expected to empower the next-generation TV service to utilize the flexibility and interactivity of the cloud, coupled with broadcast-grade scalability and resilience.

KLTR’s 63.63% trailing-12-month gross profit margin is 29.5% higher than the 49.14% industry average. Additionally, its 0.90x trailing-12-month asset turnover ratio is 44.9% higher than the 0.62x industry average.

For the fiscal third quarter that ended September 30, 2023, KLTR’s total revenue increased 6.1% year-over-year to $43.54 million, while its gross profit rose 5% from the year-ago value to $27.69 million. Also, the company’s adjusted EBITDA amounted to $309 thousand versus an adjusted EBITDA loss of $7.19 million in the same quarter last year.

The consensus revenue estimate of $172.57 million for the fiscal year ended December 2023 represents a 2.2% year-over-year improvement. While, the consensus EPS estimate for the same period reflects a 38.2% year-over-year rise.

Moreover, the company surpassed its EPS estimates in three of the trailing four quarters and revenue estimates in each of the trailing four quarters, which is impressive.

KLTR’s shares lost marginally intraday to close the last trading session at $1.74.

KLTR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has a B grade for Value and Stability. Within the A-rated 21-stock Software - SAAS industry, it is ranked #9. Click here to see the other ratings of KLTR for Growth, Momentum, Sentiment, and Quality.

Stock to Watch:

Endava plc (DAVA)

Headquartered in London, the United Kingdom, DAVA provides technology services for clients in the consumer products, healthcare, mobility, and retail verticals. The company also provides automated testing, cloud-native software engineering, continuous delivery, and transaction advisory services.

DAVA’s trailing-12-month gross profit margin and CAPEX/Sales of 32.60% and 1.40% are 33.6% and 40.7% lower than the 49.14% and 2.37% industry averages, respectively. However, its trailing-12-month EBIT and net income margins of 14.01% and 9.50% are 184.6% and 303% higher than the 4.92% and 2.36% industry averages, respectively.

For first quarter of fiscal 2024, which ended on September 30, 2023, DAVA’s revenue amounted to £188.42 million ($238.96 million). During the same quarter, the company’s profit for the period and EPS came in at £12.37 million ($15.69 million) and £0.21, down 61% and 61.8% from the prior-year quarter, respectively.

Meanwhile, the company’s cash and cash equivalents stood at £168.19 million ($213.31 million), increasing 2.1% compared to £164.70 million ($208.88 million) as of June 30, 2023.

Analysts predict DAVA’s revenue for the fiscal year ending June 2024 to increase 2.9% year-over-year to $1.01 billion. Whereas its EPS for the same period is anticipated to decline 26.6% year-over-year to $2.07. However, the company topped its EPS estimates in three of the trailing four quarters.

Over the past six months, DAVA’s shares surged 43.9% to close the last trading session at $73.43.

DAVA’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.

It is ranked #30 out of 42 stocks in the Software - Business industry. It has a C grade for Growth, Momentum, Stability, and Sentiment. Click here to see DAVA’s ratings for Value and Quality.

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

DAVA shares were trading at $74.48 per share on Friday afternoon, up $1.05 (+1.43%). Year-to-date, DAVA has declined -4.33%, versus a -1.70% rise in the benchmark S&P 500 index during the same period.

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.

More...