Software is eating the world, and virtually nothing remains untouched by it. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the past six months the sector’s 30.4% return has outperformed the S&P 500 by 20.1 percentage points.
However, competition is fierce as many recognize the benefits of software business models, making it difficult to separate the winners who can boost your portfolio from the losers who can destroy it. With that in mind, here are three software-as-a-service stocks poised to generate market-beating returns.
Market cap: $221.8 billion
ServiceNow (NYSE:NOW) was founded by Fred Luddy, who coded the company’s first prototype on a flight from San Francisco to London. It is a software provider that helps companies automate IT, HR and customer service workflows.
Why should you buy NOW?
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ARR growth averaged 24.2%, demonstrating customers are willing to make multi-year bets on the offering
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Software platform plays an irreplaceable role in customer workflows as net revenue retention reaches 125%
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NOW is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
ServiceNow’s share price of $1,057 implies a valuation ratio of 17.9x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Market cap: $142.4 billion
Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) offers a software platform for building and operating e-commerce businesses.
Why are we optimistic about SHOP?
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Payments activity on its platform is booming as TPV growth averaged 31.1%, allowing the company to collect more fees and upsell additional products such as loans and AI-driven inventory management.
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Fast sales cycles show that the company’s software is easy to implement and makes it possible to onboard many customers at the same time
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Corporate profits have increased over the past year as the company gained some control over its fixed costs and became a more efficient business
Shopify trades at $110.18 per share, or 14.4x forward price-to-sales. Is this the right time to buy? Find out in our full research report, it’s free.
Market cap: $38.64 billion
Founded by two Harvard Business School students, Cloudflare (NYSE:NET) is a software-as-a-service platform that helps improve the security, reliability, and loading times of Internet applications.
Why do we love NET?
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Its billings show an average growth of 24.8%, demonstrating that it is winning new contracts that have the potential to increase in value over time
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Market share is likely to increase over the next twelve months as expected revenue growth of 25.6% is robust
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Easy-to-use software allows customers to quickly increase spend, leading to a quick recovery in customer acquisition costs
