Software quickly reduces operating costs for companies. Companies that bring this to life have been rewarded with high valuation multiples that make fundraising easier, but they have capped their returns lately as the sector has been flat over the past six months, lagging the S&P 500’s 13.3% gain.
Investors should proceed with caution as only some companies are worth their valuations, and lucky for you, we started StockStory to help you find them. That said, there’s one software stock that offers sustainable upside, and two we’re staying away from.
Market cap: $12.78 billion
With a massive distributed network spanning more than 4,100 points of presence in nearly 130 countries, Akamai Technologies (NASDAQ:AKAM) offers a globally distributed cloud platform that helps companies deliver, secure and optimize their digital experiences online.
Why should you sell AKAM?
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Annual revenue growth of 5.1% over the past two years was well below our standards for the software sector
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The gross margin of 59.1% is well below that of the competition, leaving less money to invest in areas such as marketing and R&D
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Longer payback times on sales investments suggest the company’s platform is not sufficiently resonant to drive efficient sales conversions
Akamai Technologies’ stock price of $88.79 implies a valuation ratio of 3x forward price-to-sales. If you’re considering AKAM for your portfolio, check out our FREE research report to learn more.
Market cap: $3.15 billion
ZoomInfo (NASDAQ:GTM) operates a platform it calls “RevOS” – short for Revenue Operating System – and provides sales, marketing and recruiting teams with business intelligence and analytics to identify potential customers and provide targeted outreach.
Why do we think GTM will underperform?
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Products, pricing or go-to-market strategies may need some adjustments as average bill growth of 1% has been weak over the past year
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Estimated sales for the next twelve months remain stable and imply a weaker demand environment
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The operating margin increased by 5.1 percentage points last year as the cost structure was refined
ZoomInfo is trading at $9.83 per share, or 2.6x forward price/sales. To learn more about why GTM isn’t meeting our bar, check out our free in-depth research report.
Market capitalization: $120.3 billion
CrowdStrike (NASDAQ:CRWD), known for detecting the massive SolarWinds hack in 2020 that compromised numerous government agencies, offers cloud-based cybersecurity solutions that protect endpoints, cloud workloads, identity and data through the Falcon platform.
