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Buy, Sell, or Hold? Analyzing 3 Software Stocks

The software industry’s prospects appear optimistic owing to the rapid digitalization of business processes across end-use sectors, increased data security risks, and technological breakthroughs. So, let’s determine if you should buy, sell, or hold software stocks: Fortinet (FTNT), Akamai Technologies (AKAM), and Commvault Systems (CVLT). Read on to know more…

Spending on software products and services will likely remain robust this year and beyond due to the rising automation of business operations across several end-use industries, growing data security concerns, and increasing adoption of new, innovative technologies, creating numerous growth opportunities for software providers.

Given the industry’s tailwinds, fundamentally strong software stocks Akamai Technologies, Inc. (AKAM) and Commvault Systems, Inc. (CVLT) could be ideal investments for potential gains. However, investors could wait for a better entry point in Fortinet, Inc. (FTNT).

Demand for advanced software solutions among enterprises is surging, fueled by the rapid increase in the volume of data and growing automation of business processes across multiple end-use industries, including retail, telecommunications, manufacturing, healthcare, and financial services.

The increased deployment of business software and services across IT infrastructure would facilitate better decision-making, enhanced efficiency, inventory cost reduction, and improved market position for businesses. The global business software and services market is projected to total $1.15 trillion by 2030, exhibiting a CAGR of 11.9%.

Meanwhile, the U.S. business software and services market is expected to grow at a CAGR of 10.7% during the forecast period (2023-2030). Given several benefits like flexibility, cost-effectiveness, agility, and scalability, demand for cloud-based software products and services has increased significantly among organizations in recent times.

Furthermore, the software industry stands to benefit from the growing usage of cutting-edge technologies such as Artificial Intelligence (AI), machine learning, blockchain, the Internet of Things, and more.

In today’s digital realm, the importance of effective security software solutions has grown widely. The more companies expand their online presence, the higher the risks. The security software market is expected to reach $51.46 billion by 2029, expanding at a CAGR of 13.9%.

According to the latest forecast by Gartner, worldwide software spending is expected to total $1.03 trillion in 2024, an increase of 12.7% from the previous year.

Considering the industry’s bright prospects, investors could consider buying fundamentally sound software stocks AKAM and CVLT. However, it seems wise to wait for a better entry point in FTNT.

Now, let’s take a closer look at the fundamentals of these stocks:

Stock to Hold:

Fortinet, Inc. (FTNT)

FTNT offers cybersecurity and networking solutions globally. The company’s FortiGate hardware and software licenses provide various security and networking functions, including firewall, intrusion prevention, and anti-malware. It also offers the FortiSwitch product family, which provides secure switching solutions for connecting customers to their end devices.

On January 16, 2024, FTNT announced the industry’s first Wi-Fi 7-enabled secure networking solution. Fortinet’s first Wi-Fi 7 access point, FortiAP 441K, delivers increased speed and capacity, and the new FortiSwitch T1024 is built with 10 Gigabit Ethernet (GE) access and 90W Power over Ethernet (PoE) technology to support Wi-Fi 7 bandwidth requirements.

The new technology delivers faster speed and increased capacity for FTNT’s integrated portfolio of secure wired and wireless offerings and provides the cutting-edge wireless performance necessary for today’s enterprises.

On December 18, FTNT released new, integrated operational technology (OT) security solutions and services. The new FortiSwitch 424F, FortiExtender Vehicle 211F, and enhanced FortiGuard OT Security Service have been explicitly designed to connect and protect OT environments.

The new additions further make FTNT’s industry-leading OT Security Platform exclusive from the rest of the market.

In terms of trailing-12-month PEG, FTNT is trading at 0.79x, 22.8% lower than the industry average of 1.02x. But the stock’s forward non-GAAP P/E of 42.62x is 73% higher than the industry average of 24.64x. Also, its forward Price/Book multiple of 126.38 is significantly higher than the industry average of 4.31.

FTNT’s revenue increased 16.1% year-over-year to $1.33 billion for the third quarter that ended September 30, 2023. However, its product revenue decreased marginally from the year-ago value to $465.90 million. The company’s non-GAAP operating income was $371.40 million, up 14.3% from the prior year’s quarter.

In addition, non-GAAP net income attributable to FTNT came in at $323.50 million, or $0.41 per share, increases of 23.1% and 24.2% year-over-year. The company’s free cash flow grew 21.7% from the previous year’s period to $481.10 million.

As per business guidance for the fourth quarter of 2023, FTNT’s revenue is expected to range between $1.38 billion to $1.44 billion. Its billings are expected in the range of $1.56 billion to $1.70 billion, and non-GAAP net income per share attributable to FTNT in the range of $0.42 to $0.44.

Analysts expect FTNT’s revenue for the fourth quarter (ended December 2023) to increase 9.8% year-over-year to $1.41 billion. However, Fortinet’s EPS for the same period is expected to decrease 1.9% year-over-year to $0.43, respectively.

The company surpassed consensus EPS estimates in all four trailing quarters but missed consensus revenue estimates in three of the four trailing quarters.

FTNT’s stock has gained 12.3% over the past month to close the last trading session at $66.45. However, the stock has plunged 14.5% over the past six months.

FTNT’s mixed prospects are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a C grade for Growth, Value, Momentum, and Stability. Within the Software - Security industry, FTNT is ranked #7 of 23 stocks.

Click here to access additional ratings of FTNT for Quality and Sentiment.

Stocks to Buy:

Akamai Technologies, Inc. (AKAM)

AKAM provides cloud services for securing, delivering, and computing content, applications, and software over the internet internationally. It offers cloud solutions to keep infrastructure, websites, applications, application programming interfaces, and users safe from various cyberattacks and online threats. It also provides web and mobile performance solutions.

On November 10, AKAM and Deloitte, a leader in global security services, announced a strategic alliance to provide Zero Trust microsegmentation and incident response services to Deloitte customers globally. The alliance will combine Deloitte’s expertise in cybersecurity, network forensics, and security and Akamai’s Guardicore Segmentation solution.

The strategic alliance offers a unified product and services approach to prevent and mitigate ransomware attacks in an enterprise-ready solution.

On October 25, AKAM launched its latest Akamai Prolexic scrubbing centers in Toronto and Montreal. The new centers provide service to regional and global organizations, government institutions, and critical public infrastructure of world-class distributed denial-of-service (DDoS) protection.

Also, on October 24, AKAM and GlobalLogic Inc., a Hitachi Group (HTHIY) company and leader in digital engineering services, announced a strategic partnership to make a broad range of enterprise technology solutions available to customers globally.

This collaboration would result in enhanced customer offerings powered by Digital Solutions and Cloud for AKAM and GlobalLogic.

In the third quarter that ended September 30, 2023, AKAM’s revenue increased 9.5% year-over-year to $965.48 million. Its non-GAAP income from operations grew 22% from the year-ago value to $295.97 million. The company’s non-GAAP net income was $251.07 million and $1.63 per share, up 25.5% and 29.4% from the previous year’s quarter, respectively.

Furthermore, the company’s adjusted EBITDA increased 13.3% year-over-year to $417.60 million. Its total assets stood at $9.58 billion as of September 30, 2023, compared to $8.30 billion as of December 31, 2022.

The company increased its full-year 2023 guidance for revenue and non-GAAP EPS. AKAM expects its revenue to range between $3.80 billion and $3.82 billion, and the company’s non-GAAP net income per share is expected to be $6.08 - $6.13.

Street expects AKAM’s EPS for the fourth quarter (ended December 2023) to increase 17.7% year-over-year to $1.61, and its revenue is expected to grow 7.7% from the year-ago value to $999.48 million. Also, the company has topped consensus EPS and revenue estimates in all four trailing quarters, which is remarkable.

Shares of AKAM have surged 31.8% over the past six months and 42.6% over the past year to close the last trading session at $124.53.

AKAM’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

AKAM is ranked #17 out of 43 stocks in the B-rated Software - Business industry.

To check additional POWR Ratings of AKAM for Growth, Value, Momentum, Stability, Sentiment, and Quality, click here.

Commvault Systems, Inc. (CVLT)

CVLT offers a data protection platform that helps customers to secure, defend, and recover their data internationally. It provides a wide range of solutions like Commvault Backup and Recovery, Commvault Disaster Recovery, Commvault Complete Data Protection, Commvault HyperScale X, and Metallic Data Protection-as-a-service.

On November 8, CVLT announced Commvault Cloud, powered by Metallic AI – a new, unique platform created to change the way how IT and security teams can radically improve cyber resilience in an era of non-stop ransomware and malicious cyberattacks.

The platform brings together data protection, security, intelligence, and recovery. It offers AI capabilities to defeat cyber threats and advances reliable recovery with the industry’s first cleanroom recovery service.

On the same day, CVLT announced joining forces with leading security AI companies to help customers stay ahead of escalating cyber threats.

Industry leaders, including Avira, Darktrace, Entrust, Netskope, Palo Alto Networks, and Trellix, will integrate with the new Commvault Cloud platform to offer joint customers more ways to rapidly detect, protect, and respond to potential threats and attacks while also improving data visibility and governance.

During the fiscal 2024 second quarter that ended September 30, 2023, CVLT’s total revenues increased 6.9% year-over-year to $200.99 million. Its total ARR rose to $711 million, up 18% from the prior year’s quarter. The company’s non-GAAP income from operations rose 18.8% from the year-ago value to $42.03 million.

In addition, the company’s non-GAAP net income and non-GAAP EPS came in at $31.49 million and $0.70, up 20.8% and 22.8% year-over-year, respectively. Its free cash flow for the quarter came in at $40.10 million.

Analysts expect CVLT’s revenue and EPS for the fiscal 2024 third quarter (ended December 2023) to increase 6.7% and 17.9% year-over-year to $208.06 million and $0.73, respectively. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.

Over the past six months, the stock has gained 4.6% and 30% over the past year to close the last trading session at $81.51.

CVLT’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.

CVLT has an A grade for Growth and Quality. The stock also has a B grade for Sentiment. It is ranked #2 among 132 stocks within the Software - Application industry.

To see the other ratings of CVLT for Value, Momentum, and Stability, click here.

What To Do Next?

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10 Stocks to SELL NOW! >

FTNT shares fell $0.35 (-0.53%) in premarket trading Tuesday. Year-to-date, FTNT has gained 12.93%, versus a 3.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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