The software industry is anticipated to maintain buoyancy on the backs of increased investments in software-driven technologies, increasing automation, and improving productivity. Therefore, investors could probe into software stocks such as Autodesk, Inc. (ADSK) and DocuSign, Inc. (DOCU), rated B (Buy) in our proprietary POWR Ratings system, to capitalize on the industry’s tailwinds.
Increased investments in cloud-based technology, digital transformation of companies, and growing digitization are expected to boost the growth prospects of the technology and software industry.
For instance, the inclination of businesses toward Artificial Intelligence (AI), Robotic Process Automation (RPA), the Internet of Things (IoT), Business Process Automation (BPA), and Intelligent Document Processing (IDP) could be highly beneficial for companies.
The global enterprise software market size is projected to expand at a CAGR of 11.5% from 2022 to 2030. Moreover, as per Statista, its revenue is expected to reach $271.80 billion in 2023. According to the latest forecast by Gartner Inc. (IT), software spending is projected to expand 12.3% year-over-year.
Against this backdrop, fundamentally strong software stocks ADSK and DOCU could be solid portfolio additions now to garner significant returns in the future.
Autodesk, Inc. (ADSK)
ADSK is a software and service company specializing in 3D design, engineering, and entertainment software and services worldwide. It sells its products and services directly to customers and through a network of resellers and distributors.
In terms of the trailing-12-month gross profit margin, ADSK’s 91.57% is 81.2% higher than the industry average of 50.54%. In addition, the stock’s trailing-12-month levered FCF margin of 28.67% is 337.8% higher than the industry average of 6.55%.
For the fiscal fourth quarter that ended January 31, 2023, ADSK’s total subscription and maintenance revenue increased 10.1% year-over-year to $1.23 billion. Its non-GAAP income from operations increased 13.8% from the same period last year to $479 million, while non-GAAP net income per share came in at $1.86, representing a 24% year-over-year growth.
For the fiscal year ending January 31, 2024, the company expects its total revenues to come between $5.36 billion and $5.46 billion, while its non-GAAP EPS is expected to come between $6.98 and $7.32.
For the fiscal first quarter ending April 2023, the consensus revenue estimate of $1.27 billion indicates an 8.5% year-over-year growth. For the same quarter, Street expects EPS to increase 9% from the prior-year quarter to $1.56. In addition, ADSK topped consensus EPS and revenue estimates in three of the four trailing quarters, which is impressive.
The stock has gained marginally over the past year and 2.2% over the past five days to close its last trading session at $197.45.
ADSK’s promising prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ADSK is also rated an A for Quality and a B for Growth and Sentiment. Within the 135-stock Software - Application industry, it is ranked #7.
Click here to see the additional POWR Ratings for Value, Momentum, and Stability for ADSK.
DocuSign, Inc. (DOCU)
DOCU provides an electronic signature solution in the United States and internationally. The company offers the DocuSign e-signature solution, Contract Lifecycle Management (CLM), and Gen for Salesforce. The company sells its products through direct and partner-assisted sales and web-based self-service purchasing.
In terms of the trailing-12-month gross profit margin, DOCU’s 78.82% is 56% higher than the industry average of 50.54%. In addition, the stock’s trailing-12-month levered FCF margin of 29.46% is 349.9% higher than the industry average of 6.55%.
DOCU’s total revenue came in at $659.58 million for the fiscal fourth quarter that ended January 31, 2023, up 13.6% year-over-year. Its gross profit increased 16.2% year-over-year to $522.15 million.
Non-GAAP net income attributable to common shareholders and non-GAAP net income per share came in at $133.28 million and $0.65, representing an increase of 33.5% and 35.4% year-over-year, respectively.
Allan Thygesen, CEO of DOCU, said, "Looking ahead, we aim to drive profitable growth at scale by executing our mission of smarter, easier, and trusted agreements."
For the fiscal year ending January 31, 2024, the company expects its total revenues to come in between $2.70 billion and $2.71 billion, while its non-GAAP gross margin is expected to come between 81% and 82%.
For the fiscal first quarter ending April 2023, the consensus revenue estimate of $641.58 million indicates a 9% year-over-year growth. For the same quarter, Street expects EPS to increase 46.7% from the prior-year quarter to $0.56. In addition, DOCU topped consensus revenue estimates in each of the four trailing quarters.
The stock has gained 9.8% over the past six months to close its last trading session at $53.25.
DOCU’s POWR Ratings reflect its strong fundamentals. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
DOCU is also rated an A for Growth and a B for Quality. Within the Software - SAAS industry, it is ranked #4 out of the 23 stocks.
In addition to the above, one can see the POWR Ratings for Value, Momentum, Stability, and Sentiment for DOCU here.
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ADSK shares were trading at $195.16 per share on Wednesday morning, down $2.29 (-1.16%). Year-to-date, ADSK has gained 4.44%, versus a 8.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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