From commerce to culture: software digitizes every aspect of our lives. Companies that bring this to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on returns recently as the sector has fallen 24.7% in the past six months. This performance is noticeably different from the S&P 500’s 1% return.
However, some companies can back up their premium valuations with superior earnings growth, and our mission at StockStory is to help you find it. Taking that into account, here are two software stocks with sustainable benefits and one where we swipe left.
Market cap: $6.69 billion
Paycom (NYSE:PAYC) pioneered the concept of employees doing their own payroll with its “Beti” technology and offers cloud-based human capital management software that helps companies manage the entire employment lifecycle, from recruitment to retirement.
Why are we wary of PAYC?
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Customers had doubts about their commitment to the platform last year, as the average invoice growth of 8.5% was disappointing
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The estimated 6.6% sales growth for the next twelve months implies that demand will slow from the two-year trend
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Efficiency has declined over the past year as operating margin fell by 6 percentage points
Paycom’s stock price of $126.47 implies a valuation ratio of 3.1x forward price-to-sales. To fully understand why you should be careful with PAYC, check out our full research report (it’s free).
Market cap: $3.82 billion
With its colorful interface of boards, columns and automation that has replaced the chaos of spreadsheets, monday.com (NASDAQ:MNDY) is a cloud-based work operating system that helps teams manage projects, track tasks and streamline workflows through customizable interfaces.
Why do we support MNDY?
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Customers consider the software business critical to their operations as ARR has grown an average of 26.9% over the past year
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Software is difficult to replicate at scale and leads to a best-in-class gross margin of 89.2%
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Well-designed software integrates seamlessly with other workflows, enabling rapid return on marketing costs and customer growth at scale
monday.com trades at $75.18 per share, or 2.7x forward price/sales. Is now a good time to buy? Find out in our full research report, it’s free.
Market cap: $3.89 billion
With its fully remote workforce pioneering a new approach to software development, GitLab (NASDAQ:GTLB) offers a single-application DevSecOps platform that allows development, operations and security teams to work together to build, secure and deploy software faster.
Why will GTLB perform better?
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Last year’s ARR trends show that the company maintains a steady stream of long-term contracts that contribute positively to revenue predictability
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Customers tend to stick around and use the software more and more over time as net revenue retention tops out at 120%
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Software is difficult to replicate at scale and leads to a best-in-class gross margin of 87.4%
At $22.75 per share, GitLab trades at a forward price-to-sales of 3.4x. Is this the right time to buy? Find out for yourself in our in-depth research report, it’s free.
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The stocks that made our list in 2020 include now household names like Nvidia (+1,326% between June 2020 and June 2025) and under-the-radar companies like the once microcap company Kadant (+351% five-year return). Find your next big winner today with StockStory.
