The software industry is poised for high growth as businesses adopt advanced software services for automation, cybersecurity, and data management. As companies rely on software to streamline operations, cut costs, and enhance customer experiences, it may be wise to consider investing in high-growth stocks GoDaddy Inc. (GDDY) and Pegasystems Inc. (PEGA) to capitalize on these trends.
In today’s digital era, software is essential for maintaining competitiveness and improving overall business performance. The ever-rising demand for sophisticated software solutions, such as investigative analytics and cyber-threat defense technology, shapes the industry's prospects. The global business software market is expected to grow at a CAGR of 11.9% through 2030.
Furthermore, with the rising global popularity of essential business software such as financial & accounting, marketing automation, e-commerce, and project management, the high demand for these efficiency-enhancing solutions presents a promising investment opportunity in the software sector. The software market is expected to grow at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion.
Considering these conducive trends, let’s analyze the fundamental aspects of the two Software - Business picks mentioned above, beginning with the second choice.
Stock #2: GoDaddy Inc. (GDDY)
GDDY engages in the design and development of cloud-based products in the United States and internationally. It operates through two segments: Applications and Commerce and Core Platform.
On May 22, 2024, GDDY expanded its GenAI Prompt Library with over 185 new prompts, updated features, and added languages to enhance support for small businesses. The updated library now includes new categories like ad campaigns and data analysis to help entrepreneurs effectively use Generative AI.
GDDY’s EBIT grew at a CAGR of 30.1% over the past three years. Similarly, its revenue grew at a CAGR of 7.4% during the same period.
In terms of the trailing-12-month levered FCF margin, GDDY’s 19.39% is 92.1% higher than the 10.09% industry average. Likewise, its 63.16% trailing-12-month gross profit margin is 28.4% higher than the 49.2% industry average. Furthermore, its 18.06% trailing-12-month EBIT margin is 264.1% higher than the 4.96% industry average.
GDDY’s total revenues for the second quarter ended June 30, 2024, rose 7.3% year-over-year to $1.12 billion. Its net income attributable to GDDY was $146.30 million, or $1.01 per share, up 76.5% and 87% respectively from the prior year’s quarter. Additionally, its non-GAAP normalized EBITDA increased 25.4% year-over-year to $331.70 million.
Street expects GDDY’s EPS and revenues for the quarter ending September 30, 2024, to increase 40.6% and 6.9% year-over-year to $1.25 and $1.14 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 96% to close the last trading session at $146.43.
GDDY’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 40 stocks in the Software - Business industry. It has a B grade for Growth and Quality. Click here to access additional ratings for GDDY’s Value, Momentum, Stability, and Sentiment.
Stock #1: Pegasystems Inc. (PEGA)
PEGA develops, markets, licenses, hosts, and supports enterprise software in the United States, the rest of the Americas, the United Kingdom, Europe, the Middle East, Africa, and the Asia-Pacific.
On June 10, 2024, PEGA introduced Pega GenAI Socrates, a dynamic AI tutor that personalizes learning and adapts to individual needs, enhancing skill retention and effectiveness. The tool offers a more interactive and engaging corporate learning experience.
On the same date, PEGA announced it would expand its GenAI framework to integrate with AWS and Google Cloud's generative AI models. This expansion will allow clients to leverage these technologies for enhanced decision-making and workflows within the Pega Platform.
PEGA’s revenue grew at a CAGR of 11.2% over the past five years. Likewise, its net income grew at a CAGR of 103.5% over the past three years.
In terms of the trailing-12-month net income margin, PEGA’s 8.72% is 176% higher than the 3.16% industry average. Similarly, its 26.69% trailing-12-month levered FCF margin is 164.4% higher than the 10.09% industry average. Its 1.09x trailing-12-month asset turnover ratio is 74.5% higher than the 0.63x industry average.
For the fiscal second quarter ended June 30, 2024, PEGA’s total revenue increased 17.7% year-over-year to $351.15 million. Likewise, its non-GAAP net income and non-GAAP EPS rose significantly over the prior-year quarter to $45.84 million and $0.52, respectively.
For the quarter ending March 31, 2025, PEGA’s revenue is expected to increase 7.8% year-over-year to $355.80 million. Its EPS for the same quarter is expected to increase 12.3% year-over-year to $0.54. PEGA surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 46% to close the last trading session at $65.19.
PEGA’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #2 in the Software - Business industry. To see PEGA’s Value, Momentum, and Stability ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GDDY shares were trading at $146.48 per share on Monday afternoon, down $4.77 (-3.15%). Year-to-date, GDDY has gained 37.98%, versus a 9.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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