The software industry has been experiencing significant growth worldwide amid businesses across multiple sectors undergoing digital transformation and growing adoption of cutting-edge technologies like artificial intelligence (AI), the Internet of Things (IoT), machine learning (ML), and cloud computing.
Given these factors, investors could consider buying fundamentally sound software stocks Check Point Software Technologies Ltd. (CHKP), SS&C Technologies Holdings, Inc. (SSNC), and Vimeo, Inc. (VMEO) with sky-high gain potential this month.
Growing digitalization initiatives among enterprises, rapid shift to cloud-based solutions, multichannel integration, resource management, and data analysis for revenue growth are all driving forces in the business software market. The business software market is estimated to reach $1.10 trillion by 2029, growing at a CAGR of 11.2%.
Besides, the surge in demand for customized apps and the surging adoption of smartphones are boosting the prospects of the application development software market. The low-code and no-code development platform, integration with DevOps practices, cloud-native application development, and emphasis on user experience are gaining popularity in the market.
Further, the adoption of cybersecurity is expected to grow with the increasing internet penetration worldwide. While dismissing cybersecurity as a task for the IT department was common earlier, it is now increasingly becoming the dominant part of top-level strategic planning. Therefore, revenue in the cybersecurity market is expected to grow at a CAGR of 10.6% by 2028.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best software stocks: CHKP, SSNC, and VMEO.
Check Point Software Technologies Ltd. (CHKP)
Headquartered in Tel Aviv, Israel, CHKP develops, markets, and supports a wide range of products and services for IT security worldwide. The company provides a multilevel security architecture, cloud, network, mobile devices, endpoint information, and IOT solutions.
On March 26, 2024, CHKP announced a new collaboration with Microsoft Corp. (MSFT) that utilizes the Microsoft Azure OpenAI Service to enhance Check Point Infinity AI Copilot, marking a considerable advancement in cyber security AI applications.
Infinity AI Copilot is a generative AI service that uses automation to accelerate security administration by up to 90% and improve security effectiveness via faster incident mitigation and response. CHKP’s partnership with Microsoft Azure OpenAI Service marks a significant step forward in its mission to provide advanced AI-driven security solutions.
On March 19, CHKP collaborated with NVIDIA Corp (NVDA) to enhance the security of AI cloud infrastructure. Integrating NVIDIA BlueField DPUs, which feature a broad range of purpose-built, innovative security capabilities, the new CHKP AI Cloud Protect solution can help prevent threats at the network and host levels. This partnership should bode well for both the companies.
CHKP’s trailing-12-month gross profit margin of 88.88% is 83.1% higher than the industry average of 48.55%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of 38.62% and 34.80% are significantly higher than the industry averages of 9.55% and 2.93%.
During the fourth quarter, which ended December 31, 2023, CHKP’s revenues increased by 3.9% year-over-year to $663.50 million. Its non-GAAP operating income grew 6.8% over the prior-year quarter to $308.60 million. The company’s non-GAAP net income and non-GAAP EPS stood at $298.50 million and $2.57, respectively.
Analysts expect CHKP’s revenue for the first quarter (ended March 2024) to increase 5.1% year-over-year to $594.86 million. Street expects the company’s EPS to grow 11.4% year-over-year to $2 for the same quarter. Moreover, CHKP has surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
CHKP’s stock has soared 30.7% over the past nine months to close the last trading session at $164.39.
CHKP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality. CHKP is ranked #2 in the 22-stock B-rated Software - Security industry.
Beyond what is stated above, we’ve also rated CHKP for Sentiment, Value, Growth, Stability, and Momentum. Get all CHKP ratings here.
SS&C Technologies Holdings, Inc. (SSNC)
SSNC offers software products and software-enabled services to financial services and healthcare industries. It owns and operates a technology stack across securities accounting, front-office functions like trading and modeling, middle-office functions comprising portfolio management and reporting, and back-office functions like accounting and tax reporting.
On March 28, 2024, SSNC announced the first release of its new SS&C Blue Prism Next Generation intelligent automation platform. This platform is designed to deliver continuous new agile capabilities. The first release features process design, centralized storage, secure execution, and cloud-based operations.
On March 27, SSNC expanded its global footprint by opening a new office in Abu Dhabi, United Arab Emirates. The Financial Services Regulatory Authority (FSRA) granted SS&C full approval to deliver fund administration services within the prestigious Abu Dhabi Global Market (ADGM).
SSNC’s trailing-12-month gross profit margin of 48.51% is 58.1% higher than the industry average of 30.68%. Also, the stock’s trailing-12-month net income margin of 11.03% is 87.4% higher than the industry average of 5.89%. Its trailing-12-month EBIT margin of 22.54% is 128% higher than the industry average of 9.89%.
SSNC’s revenue increased 5.5% year-over-year to $1.42 billion during the fourth quarter that ended December 31, 2023. Its adjusted operating income rose 8.6% year-over-year to $545.20 million. The company’s adjusted EPS grew 8.6% from the year-ago value to $1.26.
In addition, the company’s cash and cash equivalents were $432.20 million as of December 31, 2023, compared to $440.10 million as of December 31, 2022.
Analysts expect SSNC’s revenue and EPS for the fiscal first quarter (ended March 2024) to increase 3.6% and 9.7% year-over-year to $1.41 billion and $1.22, respectively. Additionally, the company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is remarkable.
Shares of SSNC have gained 21.9% over the past six months to close the last trading session at $62.73.
SSNC’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
SSNC has a B grade for Value, Momentum, Sentiment, Stability, and Growth. It is ranked #4 in the B-rated Software - Application industry.
In addition to the POWR Ratings highlighted above, one can access SSNC’s ratings for Quality here.
Vimeo, Inc. (VMEO)
VMEO provides video software solutions globally. The company offers video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
On February 29, 2024, VMEO announced the launch of Vimeo Central, a secure, AI-powered video hub. Designed for business leaders and their teams, Vimeo Central empowers employees to communicate through video, extract actionable insights from a centralized source of truth, and become a more connected and productive organization.
VMEO’s trailing-12-month gross profit margin of 78.12% is 57.8% higher than the industry average of 49.50%. Likewise, the stock’s trailing-12-month net income margin of 5.28% is 103.3% higher than the industry average of 2.60%.
For the fourth quarter ended December 31, 2023, VMEO reported revenue of $417.21 million, and its non-GAAP gross profit was $325.64 million. Its net earnings came in at $22.03 million, compared to a net loss of $79.59 million. The company’s EPS stood at $0.05, compared to a loss per share of $0.49 in the prior year’s quarter.
Street expects VMEO’s revenue to increase 4.1% year-over-year to $412.25 million for the fiscal year ending December 2025. The company’s EPS for the same period is anticipated to grow 131.6% from the prior year to $0.03, respectively. Moreover, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Shares of VMEO have surged 13.9% over the past nine months to close the last trading session at $3.76.
VMEO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
VMEO has an A grade for Value and Quality and a B in Sentiment. It is topped the list of 19 stocks in the B-rated Software - SAAS industry.
Click here to access the additional VMEO ratings (Growth, Stability, and Momentum).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CHKP shares were trading at $164.67 per share on Monday morning, up $0.28 (+0.17%). Year-to-date, CHKP has gained 7.78%, versus a 9.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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