The software industry is well-positioned to stay buoyed in the foreseeable future due to its innovations and cutting-edge technologies. Against this backdrop, fundamentally strong software stocks Commvault Systems (CVLT), Rimini Street (RMNI), and Xperi (XPER) might be better buys than industry leader Salesforce (CRM). Let’s discuss why….
Despite recent challenges, such as rising inflation rates and widespread job cuts, the technology sector has proven to be highly resilient and capable of overcoming many market obstacles. The ongoing digital transformation across industries has helped create robust demand for technology products and services.
Given this backdrop, it could be wise to invest in Commvault Systems, Inc. (CVLT), Rimini Street, Inc. (RMNI), and Xperi Inc. (XPER). With constant innovation, promising growth prospects, and affordable entry points for investors looking to invest in software stocks, these three companies seem to be a better choice than Salesforce, Inc. (CRM).
The software industry is known to experience significant market volatility, yet it possesses a strong track record of continuous innovation, enabling it to remain resilient. According to Statista, revenue in the software market is projected to reach $659 billion in 2023.
With the increasing demand for software-based solutions and services and the rapid adoption of Artificial Intelligence (AI) tools and solutions, the global AI software market is expected to hit $1.09 trillion by 2032, growing at a CAGR of 23%.
Although CRM remains a pioneer in the software field, it exhibits stretched valuation currently. In terms of its forward P/E, it is trading at 75.95x, 236.3% higher than the industry average of 22.58x. Its forward Price/Sales multiple of 5.58 is 122% higher than the 2.52 industry average.
Hence, let us evaluate the fundamentals of the stocks mentioned above in detail and see why they seem to be a better choice than CRM.
Commvault Systems, Inc. (CVLT)
CVLT engages in the provision of data protection and information management software applications and related services. Its offerings include Commvault Backup and Recovery, a backup and recovery solution; Commvault Disaster Recovery, a replication and disaster recovery solution; and Commvault Complete Data Protection, a data protection solution.
On May 3, CVLT announced that KuppingerCole Analysts AG had named the company an Overall Leader in its Leadership Compass on Cloud Backup for Ransomware Protection. Within this rating, the company was also recognized as a Product Leader, Innovation Leader, and Market Leader.
Thanks to its extensive coverage for SaaS apps and structured and unstructured data, CVLT remains at the forefront of cloud data protection.
On April 11, CVLT collaborated with Microsoft to help organizations drive hard cost savings and improve operational efficiencies. According to a report by Enterprise Strategy Group (ESG), the collaboration should enable organizations to reduce data protection and data management costs by up to 30%. The collaboration could be strategically beneficial for the company.
In terms of forward EV/EBIT, CVLT has a 14.14, 15.3% lower than the 16.69 industry average. In terms of its forward Price/Cash Flow, the stock is trading at 16.01x, 8.8% lower than the industry average of 17.55x.
CVLT’s total revenues increased 1.9% year-over-year for the fiscal year that ended on March 31, 2023, to $784.59 million. During the same period, its non-GAAP income from operations and non-GAAP net income came in at $159.90 million and $117.11 million, respectively.
The company’s non-GAAP EPS stood at $2.56, up 2% from the prior-year period. In addition, its cash and cash equivalent came in at $287.78 million, representing an increase of 7.6% year-over-year.
Streets expect CVLT’s revenue and EPS to increase by 3.7% and 9% year-over-year for the second quarter (ending September 2023) to $195.02 million and $0.62, respectively. Moreover, it topped its EPS and revenue estimates in three of its trailing four quarters.
Also, CVLT’s revenue and EBITDA grew at CAGRs of 5.4% and 54.7% over the past three years, respectively. Likewise, its EBIT has improved at a CAGR of 876.3% in the same period.
Over the past nine months, the stock has gained 7.6% to close the last trading session at $61.15.
CVLT’s POWR Ratings reflect this solid outlook. The stock has an overall A rating, 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 Growth, Value, and Sentiment. In the 199-stock Software – Application industry, it is ranked #2. To see additional POWR Ratings of CVLT for Momentum and Stability, click here.
Rimini Street, Inc. (RMNI)
RMNI is a global provider of end-to-end enterprise software support products and services for various industries. The company offers application management services for Oracle and SAP enterprise software products.
On March 22, RMNI announced the launch of Rimini One, a cloud-based platform that enables customers to manage their software assets and operations from a single, unified interface.
Rimini One is designed to simplify software management, reduce costs, and improve operational efficiency by providing customers with a single platform for managing their software assets, licenses, and support contracts.
In terms of its forward EV/Sales, RMNI is trading at 0.75x, 70.9% lower than the industry average of 2.57x. Its forward Price/Sales multiple of 0.86 is 65.7% lower than the 2.52 industry average.
RMNI’s revenue increased 7.8% year-over-year for the first quarter that ended on March 31, 2023, to $105.51 million, while its gross profit grew 9% from the year-ago value to $66.17 million in the same period. The company’s non-GAAP operating and net incomes came in at $15.44 million and $10.39 million, representing a 27.6% and 12.4% increase year-over-year, respectively.
In addition, its EPS stood at $0.03, up 100% from the same period last year. Also, its adjusted EBITDA increased 28.6% from the prior-year quarter to $16.58 million.
In addition, RMNI’s revenue and EBITDA grew at CAGRs of 12.5% and 21.6% over the past three years, respectively. Likewise, its total assets and leveraged FCF have grown at CAGRs of 22.3% and 23.9%, respectively, in the same period.
The consensus EPS estimate of $0.11 for the second quarter (ending June 30, 2023) represents a 54.3% improvement year-over-year. The consensus revenue estimate of $105.70 million for the ongoing quarter indicates a 4.5% increase from the same period last year. The company has an excellent revenue surprise history, as it surpassed the consensus revenue estimates in each of its trailing four quarters.
RMNI’s shares have gained 6.7% over the past month and 8.9% year to date to close the last trading session at $4.15.
RMNI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Growth, Value, Stability, and Quality. In the same industry, it is ranked #7. Click here to see the other ratings of RMNI for Momentum and Sentiment.
Xperi Inc. (XPER)
XPER is engaged in providing software and services in the United States. It offers Pay-TV solutions, IPTV solutions, managed IPTV service, video metadata and service, app content linking services, advanced metadata, personalized content discovery, natural language voice and insights, and TiVo DVR subscriptions.
On January 4, TiVo, a subsidiary of XPER, and Amlogic, a leading fabless semiconductor company, announced that they had pre-integrated TiVo® OSonAmlogic T962D4 and T950D4 chipsets for the European and U.S. markets.
By choosing pre-Integrated 4K and 2K smart TV chipsets, TV OEMs benefit from the combined scale and support of critical technology providers, hardware suppliers, and advertisers.
Benjamin Maughan, general manager of the smart TV media platform at XPER, believes that such innovations aid the company in offering a turnkey, cost-effective, and market-ready TV OS and evolving as a leading independent TV OS platform supplier.
In the same month, Sony Pictures Entertainment (SPE); DTS, Inc., a wholly-owned subsidiary of XPER; and IMAX Corporation (IMAX), announced a significant expansion of the IMAX Enhanced® ecosystem with SPE’s commitment to release multiple new titles in the IMAX Enhanced format during their respective home entertainment windows over the next few years.
The extension of the partnership is expected to drive growth in the premium home entertainment market.
The stock’s forward EV/Sales multiple of 0.62 is 76.1% lower than the industry average of 2.57. In terms of its forward Price/Sales, it is trading at 0.74x, 70.7% lower than the 2.52x industry average.
During the fiscal fourth quarter (ended December 31, 2022), XPER’s revenue increased 8.6% year-over-year to $135.53 million. The company’s non-GAAP attributable net income and EPS for the same period amounted to $3.71 million and $0.08, respectively, while its non-GAAP adjusted EBITDA came in at $3.61 million.
In addition, its cash and cash equivalent stood at $160.13 million, representing an increase of 32.7% year-over-year compared to $120.69 million for the year that ended December 31, 2021. Likewise, its total current assets grew 19.9% year-over-year to $322.26 million versus $277.14 million in the same period last year.
Analysts expect XPER’s revenue to increase 2.5% year-over-year for the second quarter (ending June 2023) to $129.35 million. Its revenue has grown at a CAGR of 36.4% over the past three years. The stock has gained 7.9% year-to-date to close the last trading session at $9.29.
It’s no surprise that XPER has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Sentiment, and Quality. Within the same Industry, it is ranked #3.
In addition to the POWR Ratings we stated above, we also have XPER ratings for Value, Momentum, and Stability. Get all XPER ratings here.
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CVLT shares were unchanged in premarket trading Monday. Year-to-date, CVLT has declined -2.69%, versus a 8.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta’s profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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