From commerce to culture, software is digitizing every aspect of our lives. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 24.7% over the past six months. This performance is a noticeable divergence from the S&P 500’s 1% return.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. Taking that into account, here are two software stocks boasting durable advantages and one we’re swiping left on.
One Software Stock to Sell:
Paycom (PAYC)
Market Cap: $6.69 billion
Pioneering the concept of employees doing their own payroll with its "Beti" technology, Paycom (NYSE: PAYC) provides cloud-based human capital management software that helps businesses manage the entire employment lifecycle from recruitment to retirement.
Why Are We Wary of PAYC?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 8.5% underwhelmed
- Estimated sales growth of 6.6% for the next 12 months implies demand will slow from its two-year trend
- Efficiency has decreased over the last year as its operating margin fell by 6 percentage points
Paycom’s stock price of $126.47 implies a valuation ratio of 3.1x forward price-to-sales. To fully understand why you should be careful with PAYC, check out our full research report (it’s free).
Two Software Stocks to Buy:
monday.com (MNDY)
Market Cap: $3.82 billion
With its colorful interface of boards, columns, and automation that replaced the chaos of spreadsheets, monday.com (NASDAQ: MNDY) is a cloud-based work operating system that helps teams manage projects, track tasks, and streamline workflows through customizable interfaces.
Why Are We Backing MNDY?
- Customers view its software as mission-critical to their operations as its ARR has averaged 26.9% growth over the last year
- Software is difficult to replicate at scale and leads to a best-in-class gross margin of 89.2%
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
monday.com is trading at $75.18 per share, or 2.7x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
GitLab (GTLB)
Market Cap: $3.89 billion
With its all-remote workforce pioneering a new approach to software development, GitLab (NASDAQ: GTLB) provides a single-application DevSecOps platform that helps development, operations, and security teams collaborate to build, secure, and deploy software faster.
Why Will GTLB Outperform?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Customers tend to stick around and use its software more over time as its net revenue retention rate clocks in at 120%
- Software is difficult to replicate at scale and leads to a best-in-class gross margin of 87.4%
At $22.75 per share, GitLab trades at 3.4x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum — both boxes checked at the same time.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
