10 software stocks with sales expected to increase up to 174% through 2023

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Investors looking for bargains successful an costly banal marketplace mightiness beryllium amended disconnected focusing connected income maturation arsenic an indicator, based connected however good bundle companies’ stocks person performed.

Jefferies expert Sean Darby cited 2 important trends successful enactment of the bundle manufacture successful a July 19 report: An “unprecedented upswing” successful U.S. superior spending by companies and “record U.S. concern formation” successful a choky labour market. Those trends mean increases successful bundle subscriptions.

At archetypal glance, bundle stocks arsenic a radical look to beryllium expensive. Here’s a examination of the question of guardant price-to-earnings ratios (based connected rolling 12-month statement net estimates among analysts polled by FactSet) for the S&P 500 bundle manufacture radical and the afloat S&P 500 Index SPX, +1.51% implicit the past 5 years:

FactSet

But you get what you wage for. Before looking astatine sales, net and currency travel comparisons, cheque retired however good the S&P 500 bundle manufacture radical has performed against the afloat scale implicit the past 5 years, with dividends reinvested:

FactSet

The S&P 500 Index has done well. The bundle manufacture radical is astir virtually disconnected the chart.

Looking backmost and looking ahead

Sales

Here’s a examination of income maturation figures for the S&P 500 bundle manufacture radical and the afloat S&P 500 implicit the past 5 afloat calendar years:

2020 2019 2018 2017 2016
S&P 500 Software 11.3% 11.3% 17.4% 9.6% -2.8%
S&P 500 -2.1% 4.9% 10.2% 5.9% 0.0%
Source: FactSet

Now let’s look up astatine aggregate sales-growth projections for 2021 and the adjacent 2 years, based connected statement sales-per-share estimates:

2021 2022 2023
S&P 500 Software 14.6% 12.8% 9.8%
S&P 500 13.0% 6.5% 4.8%
Source: FactSet

Earnings

Here’s a look astatine the maturation of net per stock for the S&P 500 bundle manufacture radical and the afloat scale implicit the past 5 years.

2020 2019 2018 2017 2016
S&P 500 Software 21.9% 102.5% -21.1% 35.4% -9.8%
S&P 500 -17.5% 3.8% 19.4% 11.1% -1.3%
Source: FactSet

Here are aggregate EPS estimates for 2021 and the pursuing 2 years, based connected statement estimates:

2021 2022 2023
S&P 500 Software 16.8% 12.1% 8.8%
S&P 500 38.7% 10.8% 8.9%
Source: FactSet

Free currency flow

A company’s escaped currency travel is its remaining currency travel aft planned superior expenditures. It is wealth that tin beryllium utilized for concern expansion, acquisitions, stock buybacks, dividend increases oregon different firm purposes.

Here are comparisons of increases successful aggregate escaped currency travel per stock for the 2 groups implicit the past 5 years, based connected statement estimates:

2020 2019 2018 2017 2016
S&P 500 Software 17.9% 14.8% 8.6% 20.1% 12.0%
S&P 500 9.2% 6.6% 14.5% 7.3% 15.2%
Source: FactSet

And present are projections for increases successful yearly escaped currency travel per stock done 2023:

2021 2022 2023
S&P 500 Software 18.0% 12.3% 12.3%
S&P 500 27.0% 15.7% 8.8%
Source: FactSet

There are vagaries successful the information — a precise ample company’s net results tin beryllium distorted for immoderate 1 twelvemonth due to the fact that of one-time items, and those tin skew results for an manufacture group.

You tin besides spot higher expectations for the betterment twelvemonth of 2021 for the afloat index. Then again, the S&P 500’s income and net declined during 2020, portion those items were affirmative for the bundle industry. The inclination is clear. The bundle manufacture has been connected a accelerated maturation way for a agelong clip and is expected to enactment the course.

Software banal screens

The Jefferies study connected July 19 included a database of 13 bundle companies, with 7 unrated by the firm, a “hold” standing connected Oracle Corp. ORCL, +1.90% and “buy” ratings for 5 companies (in alphabetical order): Adobe Inc. ADBE, +1.14%, Citrix Systems Inc. CTXS, +1.10%, Intuit Inc. INTU, +2.38%, Microsoft Corp. MSFT, +0.87% and Salesforce.com Inc. CRM, +2.05%.

There are lone 13 bundle companies successful the S&P 500, according to FactSet. The radical excludes net bundle and services companies, specified arsenic Facebook Inc. FB, +1.20%, Alphabet Inc. GOOG, +1.66% and Netflix Inc. NFLX, +0.17%.

In bid to broaden the database and marque definite it included the 13 companies successful the Jefferies list, we began our surface with the S&P Composite 1500 Index SP1500, +1.63% (made up of the S&P 500, the S&P 400 Mid Cap Index MID, +2.97% and the S&P Small Cap 600 Index SML, +3.25% ) and the Nasdaq-100 scale (which is tracked by the Invesco QQQ Trust QQQ, +1.17% ). This yielded a database of 42 bundle companies.

Sales maturation projections

Starting with our database of 43 bundle companies, present are the 10 expected to amusement the champion income maturation implicit the adjacent 3 years (among the 33 companies for which the statement estimates are available).

Company Estimated summation successful income from 2020 done 2023 Estimated income – 2023 Estimated income – 2022 Estimated income – 2021 Sales – 2020
Sabre Corp. SABR, +3.43% 174% $3,657 $2,911 $1,808 $1,334
Okta Inc. Class A OKTA, +3.35% 163% $2,134 $1,642 $1,189 $813
DocuSign Inc. DOCU, +5.28% 141% $3,372 $2,603 $1,999 $1,401
Zoom Video Communications Inc. Class A ZM, +0.44% 129% $5,546 $4,717 $3,879 $2,420
Paycom Software Inc. PAYC, +3.74% 85% $1,555 $1,269 $1,018 $841
Paylocity Holding Corp. PCTY, +6.01% 73% $1,011 $853 $703 $584
NetEase Inc. ADR NTES, +0.86% 72% $18,394 $16,085 $13,642 $10,673
Salesforce.com Inc. CRM, +2.05% 70% $35,679 $30,614 $25,567 $20,930
Ceridian HCM Holding Inc. CDAY, +2.46% 70% $1,433 $1,170 $1,003 $843
Baidu Inc ADR Class A BIDU, +0.30% 68% $26,112 $22,853 $19,788 $15,513
Source: FactSet

All estimates are successful millions and are for calendar years (as galore companies person fiscal years that don’t lucifer the calendar).

You tin click connected the tickers for much astir each company.

Here’s a summary of terms ratios and expert sentiment for this radical of expected accelerated income growers:

Company Forward P/E Forward price/ sales Share “buy” ratings Closing terms – July 19 Consensus terms target Implied 12-month upside potential
Sabre Corp. SABR, +3.43% N/A 1.7 25% $10.92 $12.75 17%
Okta Inc. Class A OKTA, +3.35% N/A 24.5 65% $241.35 $274.95 14%
DocuSign Inc. DOCU, +5.28% 170.1 26.6 76% $289.48 $278.28 -4%
Zoom Video Communications Inc. Class A ZM, +0.44% 79.8 25.2 46% $354.20 $412.63 16%
Paycom Software Inc. PAYC, +3.74% 81.7 20.1 69% $367.40 $424.86 16%
Paylocity Holding Corp. PCTY, +6.01% 100.8 14.7 59% $192.34 $205.53 7%
NetEase Inc. ADR NTES, +0.86% 26.8 5.7 86% $112.25 $134.13 19%
Salesforce.com Inc. CRM, +2.05% 66.4 8.2 81% $237.55 $279.56 18%
Ceridian HCM Holding Inc. CDAY, +2.46% 264.2 13.8 53% $95.65 $105.93 11%
Baidu Inc ADR Class A BIDU, +0.30% 19.5 3.1 86% $176.45 $310.92 76%
Source: FactSet

For Sabre Corp. and Okta Inc., nary guardant P/E ratios are disposable due to the fact that they are expected to station nett losses for astatine slightest the adjacent 4 quarters. For comparison, aggregate guardant P/E ratios are 34 for the S&P 500 bundle manufacture radical and 21.1 for the afloat S&P 500. Aggregate guardant price-to-sales ratios are 10.5 for the S&P 500 bundle radical and 2.7 for the afloat S&P 500.

Keep successful caput that Wall Street analysts are truly focused connected abbreviated periods — a 12-month terms people whitethorn not mean precise overmuch erstwhile selecting stocks for maturation implicit a play of galore years.

Analysts’ favourite bundle stocks

Here are the 10 bundle stocks with the highest percentages of “buy” oregon equivalent ratings among analysts polled by FactSet:

 Company  Share “buy” ratings Closing terms – July 19 Consensus terms target Implied 12-month upside potential Forward P/E Forward price/ sales
ACI Worldwide Inc. ACIW, +2.45%   100% $34.86 $45.40 30% 30.7 3.1
Progress Software Corp. PRGS, +3.35%   100% $44.02 $56.60 29% 13.2 3.7
SailPoint Technologies Holdings Inc. SAIL, +2.65%   92% $47.60 $64.31 35% N/A 10.5
Microsoft Corp. MSFT, +0.87%   92% $277.01 $297.98 8% 34.5 11.6
CommVault Systems Inc. CVLT, +3.11%   88% $77.11 $81.83 6% 31.7 4.7
Baidu Inc. ADR Class A BIDU, +0.30%   86% $176.45 $310.92 76% 19.6 3.1
NetEase Inc. ADR NTES, +0.86%   86% $112.25 $134.13 19% 26.7 5.6
Adobe Inc. ADBE, +1.14%   81% $602.05 $628.55 4% 47.2 17.3
Synopsys Inc. SNPS, +1.47%   81% $274.48 $312.00 14% 40.9 10.0
Salesforce.com Inc. CRM, +2.05%   81% $237.55 $279.56 18% 66.6 8.2
Source: FactSet

Finally, present are income maturation projetions for this radical of 10 bundle stocks favored by analysts:

 Company  Estimated summation successful income from 2020 done 2023 Estimated income – 2023 Estimated income – 2022 Estimated income – 2021 Sales – 2020
ACI Worldwide Inc. ACIW, +2.45% 18% $1,530 $1,397 $1,331 $1,294
Progress Software Corp. PRGS, +3.35% N/A N/A $541 $532 $446
SailPoint Technologies Holdings Inc. SAIL, +2.65% 56% $571 $473 $409 $365
Microsoft Corp MSFT, +0.87%. 41% $216,606 $198,789 $176,548 $153,284
CommVault Systems Inc. CVLT, +3.11% 23% $857 $807 $756 $697
Baidu Inc. ADR Class A BIDU, +0.30% 68% $26,112 $22,853 $19,788 $15,513
NetEase Inc. ADR NTES, +0.86% 72% $18,394 $16,085 $13,642 $10,673
Adobe Inc. ADBE, +1.14% 59% $20,899 $18,302 $15,890 $13,142
Synopsys Inc. SNPS, +1.47% 30% $4,916 $4,518 $4,140 $3,775
Salesforce.com Inc. CRM, +2.05% 70% $35,679 $30,614 $25,567 $20,930
Source: FactSet

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