Software is eating the world, and virtually no business is left untouched by it. 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 7.4% over the past six months. This drawdown was disappointing since the S&P 500 held its ground.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. With that said, here is one resilient software stock at the top of our wish list and two that may face trouble.
Two SoftwareStocks to Sell:
Zoom (ZM)
Market Cap: $23.18 billion
Started by Eric Yuan who once ran engineering for Cisco’s video conferencing business, Zoom (NASDAQ: ZM) offers an easy to use, cloud-based platform for video conferencing, audio conferencing and screen sharing.
Why Does ZM Fall Short?
- Offerings struggled to generate meaningful interest as its average billings growth of 5% over the last year did not impress
- Net revenue retention rate of 98% shows it has a tough time retaining customers
- Projected sales growth of 3% for the next 12 months suggests sluggish demand
Zoom’s stock price of $76.78 implies a valuation ratio of 4.9x forward price-to-sales. To fully understand why you should be careful with ZM, check out our full research report (it’s free).
Sprinklr (CXM)
Market Cap: $2.13 billion
Initially focused only on social media management, Sprinklr (NYSE: CXM) is a leading provider of unified customer experience management software.
Why Do We Think CXM Will Underperform?
- Offerings struggled to generate meaningful interest as its average billings growth of 4% over the last year did not impress
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its three-year trend
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 3.6 percentage points
At $8.22 per share, Sprinklr trades at 2.5x forward price-to-sales. Read our free research report to see why you should think twice about including CXM in your portfolio.
One Software Stock to Watch:
Dynatrace (DT)
Market Cap: $16.39 billion
Founded in Austria in 2005, Dynatrace (NYSE: DT) provides companies with software that allows them to monitor the performance of their full technology stack, from software applications to the infrastructure they run on.
Why Could DT Be a Winner?
- Ability to secure long-term commitments with customers is evident in its 17.6% ARR growth over the last year
- Prominent and differentiated software culminates in a top-tier gross margin of 81.9%
- DT is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Dynatrace is trading at $55.75 per share, or 8.5x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
