Top 3 Software Stocks To Watch In September 2020
Software stocks have emerged as one of the biggest winners during the pandemic. Many investors have been rushing to take advantage of the demand for software companies due to the large scale of remote working. And if you are not convinced, global fund managers have also been on a buying spree for top software stocks this year. They comprise the largest allocation in global portfolios, according to Copley Fund Research.
The software world has rapidly embraced ‘SaaS’, or “software-as-a-service”. Today, some of the biggest & best software stocks on the market have moved from the old school on-premise models to the cloud. Microsoft (MSFT Stock Report) is the best biggest success story and perhaps the best example for reference purposes. But others haven’t done so well. For instance, IBM (IBM Stock Report) is one example threatened by cloud rivals while trying to transform its own business.
Software unicorn Snowflake is filing to go public in recent weeks. It is expected to make a splash among top software stocks when it goes public. The IPO price target values the firm at between $20.9 billion and $23.7 billion. Built into these valuation projections are two private placements that came from Salesforce (CRM Stock Report) and Berkshire Hathaway (BRK.B Stock Report). So what is so attractive about Snowflake? Long story short, the epic growth, improving margins, and drastically curtailed losses are durable enough to invite bigger players to invest. In anticipation of one of the biggest IPOs this year, could this be a big tide that lifts all boats among software stocks?
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Top Software Stocks To Buy [Or Avoid] In September 2020: Zoom
First, up the list, Zoom Video Communications (ZM Stock Report) has become quite popular in 2020. The company has been making headlines with its video communication software. Zoom has a “freemium” business model. Free users face certain limits, which encourage them to upgrade. This would chiefly allow them to remove time limits and have more meeting participants. That is what has made ZM stock one of the biggest beneficiaries in 2020.
Zoom’s revenue grew 88% in the fiscal year 2020 which ended in January. It saw its adjusted EPS rose 483%. The company’s revenue jumped 270% year-over-year in the first half of fiscal 2021 as remote work and online education became the norm during the pandemic.
In that period, adjusted EPS grew tenfold. Zoom expects revenue to grow 281%-284% for the full year, while adjusted earnings could increase by seven-folds. For the following financial year, analysts are estimating that Zoom’s revenue and earnings will grow 25% and 19% respectively.
Top Software Stocks To Buy [Or Avoid] In September 2020: Fastly
While most large-cap tech stocks continued to dive after the Labor Day weekend, shares of Fastly (FSLY Stock Report) held up relatively stable. After last week’s drop to a low $72 per share, it rebounded to $81 per share. As you may or may not know, the company was already generating substantial sales growth prior to the pandemic. The push to remote work environments has made Fastly’s offerings more important than ever.
Even though it is far from the size of Amazon Web Services (AMZN stock) or Microsoft’s Azure, Fastly has become a trusted brand of some of the major tech companies in the world. Among them are Shopify (SHOP Stock Report), Etsy (ETSY Stock Report), Yelp, and TikTok, just to name a few.
Analysts that took a closer look at Fastly like it a lot, and they are able to justify its lofty stock price. I don’t know about you, but I do believe there’s a great chance that FSLY stock would rise. It could serve as a long term growth investment after the recent market rout.
Top Software Stocks To Buy [Or Avoid] In September 2020: Splunk
Last on the list, Splunk (SPLK Stock Report) has been transitioning from an old-fashioned software licensing model to a cloud-based subscription model. For starters, the company is a big data analytics company that helps enterprises of all shapes and sizes turn their raw machine data into valuable and actionable insights through their Data-to-Everything platform.
In its second fiscal quarter, the company posted revenue of $492 million, down 5% from a year ago. This is short of Wall Street’s estimate at $522.5 million. Guidance had called for $520 million in revenue. The company had a loss in the quarter of 33 cents a share, in line with many analysts’ expectations.
With the coronavirus pandemic bringing many businesses down to its knees, it is not surprising that the business will take a slight hit. This is on top of its transition from the software licensing model which impacted revenue initially. That’s because revenue is recognized over time rather than upfront.