Technology stocks have been the worst affected by the extended market correction, with the benchmark Nasdaq Composite index declining 22.5% year-to-date. Software stocks have declined in price substantially due to the tech rout, as evidenced by the iShares Expanded Tech-Software Sector ETF's (IGV) 24.1% decline year-to-date.
However, the rapid adoption of cloud-based platforms because of the reliability, cost savings, and mobility benefits they offer has propelled the demand for cloud-based software solutions among various industries. In addition, thanks to the continuing remote-working backdrop, software spending is expected to climb 9.8% to $674.90 billion in 2022, while the U.S. software market revenue is expected to reach $384.50 billion by 2027, growing at a 4.9% CAGR.
Given this backdrop, we think it could be profitable to invest in the stocks of quality small-cap software companies CSG Systems International, Inc. (CSGS), Rimini Street, Inc. (RMNI), Magic Software Enterprises Ltd. (MGIC), American Software, Inc. (AMSWA) and Karooooo Ltd. (KARO).
CSG Systems International, Inc. (CSGS)
CSGS in Englewood, Colo., is a global leader in providing customer engagement, revenue management, and payments solutions. The company offers integrated real-time revenue management platforms, leveraging the public cloud, private cloud, or on-premises deployments to optimize and monetize transactions at every customer lifecycle stage. It has a market capitalization of $1.95 billion.
On May 9, the company collaborated with Mastercard Incorporated (MA) to introduce a new bill organizer that aids in the management and payments of bills. With this product introduction, the company should be able to serve a large customer base as consumers increasingly demand to conduct transactions digitally.
On February 1, CSGS' board of directors raised the company’s quarterly dividend by 6% to $0.2650 per share of common stock. This reflects the company's improved performance.
CSGS' total revenue increased 4.5% year-over-year to $264.40 million in its fiscal first quarter (ended March 31). Its non-GAAP net income grew 3.9% from its year-ago value to $27.45 million, while its non-GAAP EPS increased 4.9% from its year-ago value to $0.86.
The $0.85 consensus EPS estimate for its fiscal second quarter (ending June 30, 2022) represents a 3.1% improvement year-over-year. The $248.10 million consensus revenue estimate for the current quarter indicates a 4% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 39% in price to close its last trading day at $60.13.
CSGS' POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. Among the 56 stocks in the Software – Business industry, it is ranked 4. Click here to see the POWR ratings of CSGS for Growth, Value, and Momentum.
Click here to check out our Software Industry Report for 2022
Rimini Street, Inc. (RMNI)
RMNI is a global provider of enterprise software support products and services. Its products and services seek to enable its clients to keep their systems operating and to remain in tax, legal and regulatory compliance; improve productivity; and allocate limited budgets, labor, and other resources to investments. RMNI has a market capitalization of $570.11 million. The company is headquartered in Las Vegas, Nev.
On June 1, RMNI expanded its stock repurchase plan by $35 million to $50 million, effective over the next four years. In addition, it prepaid $5 million on its outstanding term loan. These moves reflect the company's strong cash flows and should boost shareholder returns significantly.
In its fiscal 2022 first quarter (ended March 31, 2022), RMNI's total revenues increased 11.4% year-over-year to $97.91 million. Its operating income increased 210% from its year-ago value to $5.94 million, while its net income improved 186.3% year-over-year to $3.09 million. The company's net income per share came in at $0.03, representing a 123.1% year-over-year improvement.
Analysts expect RMNI's EPS and revenue to increase 13.3% and 8.3%, respectively, year-over-year to $0.11 and $99.23 million in its fiscal second quarter (ending June 30, 2022). RMNI has surpassed the consensus EPS estimates in three of the trailing four quarters.
RMNI has gained 18.2% in price over the past three months.
Its strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
RMNI also has an A grade for Quality and a B grade for Growth and Value. The stock is ranked #2 of 156 stocks in the Software - Application industry. Click here to see the ratings of RMNI for Momentum, Stability, and Sentiment.
Click here to check out our Software Industry Report for 2022
Magic Software Enterprises Ltd. (MGIC)
With an $859.13 million market cap, Or Yehuda, Israel-based MGIC is a provider of application development, business process integration platforms, vertical software solutions, and related professional services. The company is a vendor of information technology (IT) outsourcing services. It operates through two segments: software solutions; and IT professional services.
MGIC's revenues increased 29.3% year-over-year to $138.70 million in the first quarter, ended March 31, 2022. The company's non-GAAP operating income increased 26.2% from the year-ago value to $18.90 million, while its non-GAAP net income grew 25.7% year-over-year to $12.90 million. MGIC's non-GAAP EPS has risen 23.8% from the prior-year quarter to $0.26.
For its fiscal second quarter (ending June 30, 2022), MGIC's revenue is expected to increase 10.5% year-over-year to $131.70 million. Its EPS is expected to increase 15.2% to $0.27 in the current quarter. And the stock has surpassed the consensus EPS estimates in each of the trailing four quarters.
MGIC has gained 8.9% in price over the past month to close yesterday's trading session at $17.50.
The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. It is no surprise that MGIC has an A grade for Sentiment and a B grade for Growth and Stability. In the Software - Application industry, it is ranked #7 of 156 stocks.
Beyond what we've stated above, we have also given MGIC grades for Value, Momentum, and Quality. Get all the MGIC ratings here.
American Software, Inc. (AMSWA)
Atlanta. Ga.-based ASMWA develops, markets, and supports a portfolio of software and services that deliver enterprise management, supply chain, and retail planning solutions to the marketplace. The company operates through three segments: Supply Chain Management (SCM); Information Technology Consulting (IT Consulting); and Enterprise Resource Planning (ERP). AMSWA has a market capitalization of $594.98 million.
On June 2, AMSWA's subsidiary, Logility Inc., was recognized as a Top 100 Logistics IT Provider for the 25th consecutive year. This reflects the company's consistently strong performance in delivering pioneering technology solutions.
On January 4, Logility Inc. partnered with Planalytics Inc. to systematically address weather impacts in demand, inventory, and replenishment planning. Planalytics' weather-driven demand analytics should enable the company to hedge the shifting supply and demand trends.
During its fiscal third quarter (ended Jan.31, 2022), AMSWA's net revenue increased 17% year-over-year to $32.42 million. Its operating income rose 246% from its year-ago value to $3.24 million. Its net earnings grew 27% from the same period last year to $2.94 million, while its EPS came in at $0.09, representing a 29% increase year-over-year.
Analysts expect AMSWA's revenues to increase 9.6% year-over-year to $31.30 million in its fiscal fourth quarter (ended April 30, 2022). It is no surprise that the company has surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 11.9% in price to close the last trading session at $17.73.
AMSWA's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
AMSWA also has an A grade for Sentiment and a B grade for Stability and Quality. The stock is ranked #9 of 156 stocks in the Software - Application industry. Click here to see the other ratings of AMSWA for Growth, Value, and Momentum.
Karooooo Ltd. (KARO)
Headquartered in Singapore, KARO provides a mobility software-as-a-service (SaaS) platform for connected vehicles and other assets. Its SaaS platform provides customers with differentiated insights and analytics to optimize their business and workforce, improve safety, monitor environmental impact, assist with regulatory compliance, and manage risk. It has a market capitalization of $792.66 million.
On April 12, KARO reported strong momentum in the number of subscribers carried through for fiscal 2022 (ended Feb. 28, 2022). Its total subscribers grew by 7% year-over-year to 1,525,972 subscribers, while its net subscriber additions came in at 219,972 subscribers, up 23% year-over-year. Amid persistent operating headwinds attributable to the COVID-19 pandemic, the company's resilience is remarkable.
Last September, KARO acquired 70.1% of Picup Technologies Ltd. for ZAR70 million ($4.53 million). This acquisition facilitates KARO’s handling of overflow volumes, allowing the enterprise to plan optimally without unnecessarily investing in additional assets.
In the fourth quarter, ended Feb. 28, 2022, KARO's revenue increased 20.4% year-over-year to ZAR741.65 million ($48.04 million). Its gross profit grew 11.9% year-over-year to ZAR458.35 million ($29.69 million). The company's profit before tax increased 11.9% from its year-ago value to ZAR146.66 million ($9.50 million), while its EPS came in at ZAR3.11, representing a 6.5% year-over-year improvement.
The $0.27 consensus EPS estimate for its fiscal first quarter (ended May 31, 2022) represents a marginal improvement year-over-year. The $48.05 million consensus revenue estimate for the to-be-reported quarter represents an 11.8% increase from the same period last year.
Over the past five days, the stock has gained 3.3% in price , closing yesterday's trading session at $25.61.
It is no surprise that KARO has an overall A rating, which translates to Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B grade for Value and Sentiment. The stock is ranked #8 of 156 stocks in the Software - Application industry. To see the other ratings of KARO for Growth, Stability, and Momentum, click here.
Click here to check out our Software Industry Report for 2022
CSGS shares were trading at $60.72 per share on Tuesday afternoon, up $0.59 (+0.98%). Year-to-date, CSGS has gained 5.82%, versus a -12.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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