The software applications market thrives due to high demand for their ability to streamline operations, enhance productivity, drive innovation, and provide seamless user experiences, fueling digital transformation. Excitement over AI, DevSecOps, cloud-based mobile apps, beacon technology, and IoT further boosts the sector's prospects.
Therefore, investors could consider investing in fundamentally strong software stocks Progress Software Corporation (PRGS), Magic Software Enterprises Ltd. (MGIC), and Cognyte Software Ltd. (CGNT). Notably, these stocks are A-rated in our proprietary POWR Ratings system.
The software apps sector's growth is driven by increased automation, customer-centric software, and generative AI, with double-digit revenue growth expected through 2027. Despite recent market fluctuations, database, and customer experience software applications are poised to grow the fastest. The software market is expected to grow at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion.
Consequently, the software apps sector is growing due to the rising demand for mobile apps, driven by increased smartphone use and competition. Adapting to new app development trends is crucial for business success in today's tech-driven world. The global mobile app market is expected to grow significantly at a CAGR of 21.55% from 2024 to 2033.
Furthermore, this year, the software sector is set for growth, especially in the mobile app economy. Trends such as increased consumer spending, fresh monetization paths in social apps, AI-driven experiences, personalized interactions, channel diversification, and a focus on user privacy due to regulatory changes continue to shape the industry’s growth.
Now, let's take a closer look at the fundamentals of the Software - Application stocks mentioned above, beginning with the third choice.
Stock #3: Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications internationally. The company offers OpenEdge, Chef, Developer Tools, Kemp LoadMaster, Sitefinity, MOVEit, DataDirect, WhatsUp Gold, Flowmon, Corticon, MarkLogic, and Semaphore.
On May 7, 2024, PRGS announced that PruTech used Progress DataDirect connectors to expedite and scale cloud migration for a leading healthcare insurer, saving customers months of development time by automating complex encryption processes.
This solution, Secure Database Gateway, enhances data connectivity and security, offering significant benefits for cloud migration projects.
On April 10, 2024, PRGS announced the release of Sitefinity 15.1, featuring advanced AI capabilities for conversion optimization, content classification, and faster performance.
The update includes AI-powered conversion propensity scoring, AI-assisted content classification, and support for ASP.NET Core in .NET 8, enhancing productivity and digital experience delivery.
In terms of the trailing-12-month gross profit margin, PRGS’ 85.82% is 72.9% higher than the 49.65% industry average. Likewise, its 27.44% trailing-12-month levered FCF margin is 173.9% higher than the 10.02% industry average. Furthermore, its 4.47% trailing-12-month Return on Total Assets is 198.3% higher than the 1.50% industry average.
PRGS’ revenue for the fiscal first quarter ended February 29, 2024, grew 11.5% year-over-year to $184.69 million. Its non-GAAP income from operations rose 6% over the prior-year quarter to $76.76 million.
Additionally, the company's non-GAAP net income and non-GAAP EPS came in at $55.93 million and $1.25, representing increases of 6% and 5% year-over-year, respectively.
Street expects PRGS’ EPS and revenue for the quarter ending August 31, 2024, to increase 12.3% and 4.4% year-over-year to $1.21 and $183.52 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined marginally to close the last trading session at $50.07.
PRGS’ POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #13 out of 137 stocks in the Software - Application industry. It has a B grade for Value, and Quality. Click here to see PRGS’ Growth, Momentum, Stability, and Sentiment ratings.
Stock #2: Magic Software Enterprises Ltd. (MGIC)
Headquartered in Or Yehuda, Israel, MGIC provides proprietary application development, vertical software solutions, business process integration, information technology (IT) outsourcing software services, and cloud-based services in Israel and internationally. It operates in the Software Services segment and the IT Professional Services segment.
In terms of the trailing-12-month net income margin, MGIC’s 6.83% is 154.8% higher than the 2.68% industry average. Its 0.99x trailing-12-month asset turnover ratio is 61.6% higher than the industry average of 0.61x. In addition, MGIC’s 9.29% trailing-12-month Return on Total Capital is 245.9% higher than the industry average of 2.69%.
For the fiscal first quarter that ended March 31, 2024, MGIC’s revenues came in at $130.72 billion. Its non-GAAP operating income stood at $18.14 billion. Additionally, the company’s non-GAAP net income and non-GAAP EPS amounted to $11.28 billion and $0.23, respectively. Moreover, as of March 31, 2024, its total assets came in at $536.52 million, compared to $522.41 million as of December 31, 2023.
Analysts expect MGIC’s EPS for the quarter ending September 30, 2024, to increase 16% year-over-year to $0.24. Its revenue for the quarter ending December 31, 2024, to grow 14.6% year-over-year to $143.90 million. Over the past six months, the stock has gained 16.7% to close the last trading session at $10.93.
MGIC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #12 in the same industry. It has an A for Value and a B for Stability, Sentiment, and Quality. To see MGIC’s Growth, and Momentum ratings, click here.
Stock #1: Cognyte Software Ltd. (CGNT)
Headquartered in Herzliya, Israel, CGNT provides investigative analytics software to governments and enterprises worldwide. Its Actionable Intelligence for a Safer World is open software designed to help governments and enterprises accelerate and enhance the effectiveness of investigations.
On May 8, 2024, CGNT announced receiving an additional $5 million order from a national intelligence organization in the EMEA region for its threat identification and prevention solution, marking three orders from this customer in a year and showcasing the effectiveness and value of CGNT’s technology for enhancing operational efficiency. This significant order further solidifies CGNT's position as a trusted provider of cutting-edge security solutions in the region.
In terms of the trailing-12-month asset turnover ratio, CGNT’s 0.68x is 11.8% higher than the 0.61x industry average. Similarly, its 68.73% trailing-12-month gross profit margin is 38.4% higher than the industry average of 49.65%.
For the fiscal year ended January 31, 2024, CGNT reported a total non-GAAP revenue of $313.52 million, slightly up year-over-year. Its non-GAAP gross profit rose 9.2% from the previous year to $217.04 million.
Its adjusted EBITDA amounted to $9 million, compared to an adjusted EBITDA loss of $51.47 million in the year-ago quarter. Furthermore, as of January 31, 2024, CGNT’s total assets stood at $472.08 million, compared to $443.08 million as of January 31, 2023.
For fiscal the quarter ended April 30, 2024, CGNT’s revenue is expected to increase 12% year-over-year to $82.05 million. Over the past year, the stock has gained 71.5% to close the last trading session at $7.70.
CGNT’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.
It has a B grade for Growth, Sentiment, and Quality. Within the Software – Application industry, it is ranked #9. To access the additional POWR Ratings for CGNT for Value, Momentum, and Stability, click here.
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.
PRGS shares were trading at $49.87 per share on Wednesday afternoon, down $0.20 (-0.40%). Year-to-date, PRGS has declined -7.85%, versus a 11.02% 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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