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Top 3 Software Stocks to Buy and Hold for Long-Term Gains

Amid global digitalization, the transition toward cloud-based platforms, widespread adoption of SaaS models, and growing cyber threats are creating ample growth opportunities for software providers. Hence, it could be wise to buy and hold top software stocks UiPath (PATH), Descartes Systems (DSGX), and OneSpan (OSPN) for long-term gains. Read on…

Businesses in multiple industries increasingly embrace digital transformation by integrating software solutions to streamline their processes, drive efficiency, and improve customer experiences. The shift toward cloud-based services, the growing adoption of SaaS models, and the integration of AI, ML, and IoT technologies drive the software sector’s growth.

Given the industry’s solid footing, it could be wise to consider buying fundamentally sound software stocks UiPath Inc. (PATH), The Descartes Systems Group Inc. (DSGX), and OneSpan Inc. (OSPN) with massive growth potential.

Rapid digitalization and continuous software innovation across the globe are fueling the spending on IT services. Gartner forecasts worldwide IT spending to increase 6.8% year-over-year to $5 trillion in 2024. Moreover, spending on software is expected to reach $1.03 trillion this year, growing 12.7% from 2023.

With the growing number of small, medium, and large enterprises seeking to scale up their businesses through SaaS applications, the Software as a Service (SaaS) market will likely expand substantially. Organizations from various industries like IT infrastructure, financial management, and asset monitoring are rapidly adopting the SaaS models.

SaaS market revenue is expected to total $282.20 billion in 2024, with the U.S. being in the lead, having the highest revenue of $150.70 million in 2024. The market is projected to reach $374.50 billion by 2028, growing at a CAGR of 7.3% during the forecast period (2024-2028).

Furthermore, growing cyber threats, regulatory compliance, technological advancements, and growing cloud computing adoption are increasing the need for cybersecurity, propelling the cybersecurity software market prospects. The market is projected to be valued at $298.80 billion by 2030, expanding at a CAGR of 9.4%.

Investors’ interest in software stocks is evident from the SPDR S&P Software & Services ETF’s (XSW) 18.1% returns over the past six months.

Considering the industry’s bright prospects, investors could consider adding fundamentally sound software stocks PATH, DSGX, and OSPN to their portfolios for solid gains.

Let’s discuss the fundamentals of these stocks in detail:

UiPath Inc. (PATH)

PATH operates an end-to-end automation platform offering a range of robotic process automation (RPA) solutions internationally. It provides a suite of interrelated software to build, manage, run, engage, measure, and govern automation within the organization.

On March 26, 2024, PATH announced that the UiPath Automation Cloud™ public sector achieved authorized status in the Federal Risk and Authorization Management Program (FedRAMP®), marking a significant achievement for the company.

With PATH’s automation platform, public sector agencies can put intelligence to streamline processes, eliminate errors, and deliver better experiences to government employees and citizens.

On February 29, PATH and Google Cloud expanded their partnership to extend customers’ ability to transform their enterprises with AI-powered automation. With this, PATH is now available on the Google Cloud marketplace, integrating with Google Vertex AI to enable professionals to utilize Google Cloud’s Gen AI alongside PATH’s AI-powered automation.

The partnership is part of PATH’s strategy to help joint customers achieve AI-powered automation across the business. It also furthers the shared mission of the companies to incorporate AI in the enterprise through advanced technologies.

For the fourth quarter that ended January 31, 2024, PATH’s total revenue increased 31.3% year-over-year to $405.25 million. Its non-GAAP gross profit rose 34% from the year-ago value to $360.07 million. The company’s non-GAAP operating income was $110.52 million, up 59.6% from the prior year’s quarter.

In addition, the company’s non-GAAP net income of $128.51 million and $0.22 per share indicate growth of 55.4% and 46.7% from the previous year’s quarter, respectively. The company’s non-GAAP adjusted free cash flow was $146 million for the quarter.

For the first quarter of fiscal 2025, PATH expects revenue from $330 million to $335 million, and its non-GAAP operating income is expected to be approximately $55 million. Also, the company expects revenue from $1.55 billion to $1.56 billion and non-GAAP operating income of roughly $295 million for the fiscal full year 2025.

Analysts expect PATH’s EPS for the fiscal 2025 first quarter (ending April 2024) to increase 5.9% year-over-year to $0.12, and its revenue is expected to grow 14.9% year-over-year to $332.85 million, respectively. Moreover, the company has topped consensus EPS and revenue estimates in all four trailing quarters, which is impressive.

Shares of PATH have surged 14.5% over the past six months and 17.9% over the past year to close the last trading session at $19.12.

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

PATH has an A grade for Growth and a B for Quality. It is ranked #7 out of 19 stocks in the B-rated Software - SAAS industry.

To check POWR Ratings of PATH for Value, Momentum, Stability, and Sentiment, click here.

The Descartes Systems Group Inc. (DSGX)

Headquartered in Waterloo, Canada, DSGX offers cloud-based logistics and supply chain management solutions internationally. The company’s logistics technology platform provides a range of modular, interoperable web and wireless logistics management solutions.

On April 10, 2024, DSGX introduced Descartes MacroPoint™ FraudGuard to help freight brokers, third-party logistics companies, and shippers identify and prevent fraudulent activities related to carrier information, load tracking, and shipment status.

The innovation will automate the early detection of potential fraud, preventing disruptions for customers, mitigating financial risk, and building trust with shipper and carrier communities.

On March 28, DSGX acquired OCR Services, Inc., a leading global trade compliance solutions and content provider. The acquisition aligns with DSGX’s operations, and strengthens its global trade intelligence content solutions. OCR brings expertise in global trade compliance and experience in applying artificial intelligence (AI) in the content management process.

DSGX’s revenue increased 18.5% year-over-year to $148.20 million during the fourth quarter that ended January 31, 2024. Its income from operations rose 10.1% year-over-year to $37 million. The company’s net income came in at $31.80 million and $0.37 per share, up 6.7% and 8.8% from the prior year’s quarter, respectively.

Furthermore, the company’s adjusted EBITDA grew 18.6% from the year-ago value to $65.70 million. Its total assets were $1.47 billion as of January 31, 2024, compared to $1.32 billion as of January 31, 2023.

Street expects DSGX’s revenue for the first quarter (ending April 2024) to increase 11% year-over-year to $151.67 million. Its EPS for the same period is expected to grow 5.9% year-over-year to $0.38. Also, the company has surpassed consensus revenue estimates in each of the four trailing quarters.

DSGX’s stock gained 21.9% over the past six months and 11.2% over the past year to close the last trading session at $90.54.

DSGX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

The stock has a B grade for Sentiment, Stability, and Quality. Within the B-rated Software - SAAS industry, DSGX is ranked #9 among the 19 stocks.

Click here to access additional ratings of DSGX for Growth, Value, and Momentum.

OneSpan Inc. (OSPN)

OSPN designs, develops, and markets digital solutions for identity, authentication, and secure digital agreements globally. The company offers OneSpan Sign, OneSpan Cloud Authentication, and OneSpan Identity Verification. It also provides Mobile Security Suite, Digipass Authenticators, authentication servers, and Digipass FX1 BIO.

On December 6, 2023, OSPN introduced a new partner network program offering a comprehensive set of benefits to broaden the delivery of secure and seamless customer experiences.

The new network program empowers partners to expand their portfolio with high-assurance identity proofing, strong authentication, and secure e-signature solutions and reflects upon OSPN’s commitment to helping customers and partners secure their customer-facing and revenue-generating processes.

On November 14, OSPN launched its latest innovation to the Digipass Authenticators product line, DIGIPASS FX1 BIO, a passwordless, phishing-resistant authentication for a secure workforce. The cutting-edge physical passkey with a fingerprint scan empowers organizations to embrace passwordless authentication and provide the utmost security.

During the fourth quarter that ended December 31, 2023, OSPN’s total revenue increased 11.1% year-over-year to $62.93 million. It reported gross profit of $43.47 million, up 14.5% from the prior year’s quarter. Its adjusted EBITDA increased 250.6% from the year-ago value to $11.16 million.

Additionally, the company’s non-GAAP net income of $7.53 million and $0.19 per share indicate growth of 519.8% and 533.3% year-over-year, respectively.

As per its financial 2024 outlook, OSPN expects its revenue to be in the range of $238 million to $246 million. Also, its adjusted EBITDA is expected to be between $47 million and $52 million for the year.

Analysts expect OSPN’s revenue and EPS for the third quarter (ending September 2024) to increase 4.4% and 236.1% year-over-year to $61.42 million and $0.30, respectively. Further, the company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.

Over the past six months, the stock has gained 2.5% to close the last trading session at $9.86.

OSPN’s POWR Ratings reflect its robust outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

OSPN has an A grade for Growth. The stock also has a B grade for Sentiment and Value. It is ranked #6 among 22 stocks within the B-rated Software - Security industry.

To see the other ratings of OSPN for Quality, Stability, and Momentum, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

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PATH shares fell $19.12 (-100.00%) in premarket trading Thursday. Year-to-date, PATH has declined -23.03%, versus a 5.64% rise in the benchmark S&P 500 index during the same period.



About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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