Software quickly reduces operating costs for companies. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as high prices exposed them to big declines, and unfortunately the sector has plunged 24.1% in the last six months. This performance was significantly worse than the S&P 500’s 2.8% loss.
However, some companies can back up their premium valuations with superior earnings growth, and our mission at StockStory is to help you find it. With that in mind, there are two resilient software stocks that are at the top of our wish list, and one that could be in trouble.
Market cap: $333.5 million
Born from the recognition that companies needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ:SPT) offers a comprehensive software platform that helps companies manage, analyze and optimize their presence on various social media networks.
Why is SPT not exciting?
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Average billing growth of 8.7% over the past year was sub-par, suggesting the company is struggling to push its software and may need to cut prices to stimulate demand
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The estimated 7.8% sales growth for the next twelve months implies that demand will slow from the two-year trend
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The rapid expansion strategy came at the expense of the profitability of operating margins
Sprout Social’s share price of $5.61 implies a valuation ratio of 0.7x forward price/sales. To fully understand why you should be careful with SPT, check out our full research report (it’s free).
Market capitalization: $12.8 billion
Born from the idea that traditional interruptive marketing was becoming less effective, HubSpot (NYSE:HUBS) offers an integrated platform that helps companies attract, engage and manage customer relationships through marketing, sales, service and content management tools.
Why are we fans of HUBS?
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Average invoice growth of 22.5% over the past year improves liquidity and shows steady demand for its products
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Projected revenue growth of 18.1% for the next twelve months indicates that the momentum of the past two years is sustainable
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Superior software functionality and low service costs result in an excellent gross margin of 83.8%
At $242.18 per share, HubSpot trades at a forward price-to-sales of 3.5x. Is this the right time to buy? Find out in our full research report, it’s free.
Market capitalization: $108.8 billion
Built on a single code base that processes more than 80 billion workflows and 6.5 trillion transactions annually, ServiceNow (NYSE:NOW) offers a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.
Why do we love NOW?
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The ability to secure long-term customer commitments is evident from the 21% ARR growth over the past year
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A healthy operating margin of 13.7% shows it is a well-run business with efficient processes, and the increase over the past year was fueled by some impact on fixed costs
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Strong free cash flow margin of 34.9% enables consistent reinvestment or return of capital
ServiceNow trades at $103.37 per share, or 6.8x forward price/sales. Is this the time to take a stand? Find out for yourself in our full research report, it’s free.
ONE MORE THING: Top 6 stocks for this week. This market quickly separates quality stocks from expensive stocks. AI is taking down entire industries without warning. With such a rapid rotation, you need more than a list of good companies.
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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.
