The software industry's bright future is driven by increased spending on public cloud services and growing security concerns worldwide. This has led to higher demand for cyber-threat defense technology solutions, digital analytics platforms, and investigative analytics software, as well as changes in customer behavior.
Amid this backdrop, investors might want to watch high-growth software stocks like Darktrace plc (DRKTY), Amplitude, Inc. (AMPL), and Cognyte Software Ltd. (CGNT), all priced under $10.
The software industry thrives on advanced solutions like automation, cybersecurity, data analytics, and digitization. With trends such as scalable cloud solutions, blockchain, AI, and low-code development, the global business software market is expected to grow at a CAGR of 11.9% until 2030.
Gartner forecasts an 8% increase in global IT spending to $5.06 trillion in 2024, with software spending rising 13.9% to $1.04 trillion. Investments in mobile app development, aided by AR/VR, edge computing, and DevOps, along with expanded internet access, are driving growth in the software industry.
In addition, the software market is projected to grow at a 5.3% CAGR until 2028. Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 26.8% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the three software picks mentioned above.
Darktrace plc (DRKTY)
Headquartered in Cambridge, United Kingdom, DRKTY and its subsidiaries engage in the development and sale of cyber-threat defense technology solutions internationally. Its products include Darktrace PREVENT and Darktrace DETECT.
On June 6, 2024, DRKTY announced the launch of its new Managed Detection & Response (MDR) service, combining AI-powered threat containment with 24/7 human expert support. This service aims to enhance security operations by providing continuous monitoring, investigation, and proactive threat management.
On April 9, 2024, DRKTY announced the launch of its Darktrace ActiveAI Security Platform, designed to provide comprehensive visibility and proactive cyber resilience. This new platform combines existing security products with innovative features to reduce alert fatigue and enhance threat detection across enterprise environments.
DRKTY’s Total Assets grew at a CAGR of 37.7% over the past three years. Similarly, its revenue grew at a CAGR of 38% during the same period.
In terms of the trailing-12-month EBITDA margin, DRKTY’s 17.37% is 78.8% higher than the 9.72% industry average. Likewise, the stock’s 13.05% trailing-12-month EBIT margin is 170.2% higher than the 4.83% industry average. Also, the stock’s 17.99% trailing-12-month net income margin is 554.9% higher than the 2.75% industry average.
For the six months that ended December 31, 2023, DRKTY’s revenues increased 27.4% year-over-year to $330.30 million. Its net cash inflow from operating activities rose 142.1% from the year-ago value to $65.59 million. Moreover, the company’s net profit rose significantly, while adjusted EBITDA rose by 87% year-over-year to $52.52 million and $84.52 million, respectively.
Analysts expect DRKTY’s revenue for fiscal 2024 to increase 25.7% year-over-year to $685.42 million. Over the past year, the stock has gained 69.6% to close the last trading session at $7.30.
DRKTY’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Growth and Stability. It is ranked first out of 23 stocks in the B-rated Software – Security industry. Beyond what we stated above, we also have given DRKTY grades for Value, Momentum, and Sentiment. Get all the DRKTY’s ratings here.
Amplitude, Inc. (AMPL)
AMPL and its subsidiaries provide a digital analytics platform that analyzes customer behavior internationally. It offers Amplitude Analytics, Amplitude Experiment, Amplitude CDP, and Amplitude Session Replay.
On June 12, 2024, AMPL announced the expansion of its partner ecosystem with six new and enhanced integrations, along with the launch of a new integration portal to simplify and speed up the development of integrations. These updates aim to help businesses better understand customer behavior and build superior products.
AMPL’s revenue grew at a CAGR of 35.9% over the past three years. Likewise, its levered FCF grew at a CAGR of 95.6% over the past three years.
In terms of the trailing-12-month levered FCF margin, AMPL’s 20.38% is 104% higher than the 9.99% industry average. Likewise, its 0.66x trailing-12-month asset turnover ratio is 7.6% higher than the 0.62x industry average. Furthermore, the stock’s 74.64% trailing-12-month gross profit margin is 50.2% higher than the 49.68% industry average.
AMPL’s revenue for the fiscal first quarter ended March 31, 2024, increased 9.2% year-over-year to $53.74 million. Its non-GAAP gross profit grew 12.1% over the prior-year quarter to $55.48 million.
For the same period, AMPL’s non-GAAP net income and non-GAAP net income per share stood at $1.02 million and $0.01, compared to a non-GAAP net loss and non-GAAP net loss per share of $5 million and $0.04, respectively.
For the quarter ending June 30, 2024, AMPL’s revenue is expected to increase 6.2% year-over-year to $71.99 million. Its EPS for the quarter ending December 31, 2024, is expected to increase marginally year-over-year to $0.04. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 11% to close the last trading session at $8.68.
AMPL’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system.
AMPL has a B grade for Growth. It is ranked #35 out of 134 stocks in the Software – Application industry. To see AMPL’s Value, Momentum, Stability, Sentiment, and Quality ratings, click here.
Cognyte Software Ltd. (CGNT)
Headquartered in Herzliya, Israel, CGNT provides investigative analytics software to governments and enterprises worldwide. Its "Actionable Intelligence for a Safer World" is an open software designed to help governments and enterprises accelerate and enhance the effectiveness of investigations.
On May 8, 2024, CGNT announced it secured a $5 million follow-on order from a national intelligence organization in the EMEA region, marking the third order in a year and underscoring confidence in its investigative analytics solutions.
In terms of the trailing-12-month gross profit margin, CGNT’s 69.39% is 39.7% higher than the 49.68% industry average. Moreover, its 0.71x trailing-12-month asset turnover ratio is 15.5% higher than the 0.62x industry average.
For the fiscal first quarter ended April 30, 2024, CGNT reported a total non-GAAP revenue of $82.71 million, up 12.7% year-over-year. Its non-GAAP gross profit rose 17.1% from the previous year to $58.80 million. Also, its adjusted EBITDA amounted to $5.02 million, compared to an adjusted EBITDA loss of $2.28 million in the year-ago quarter.
Street expects CGNT’s revenue for the quarter ending July 31, 2024, to increase 8.6% year-over-year to $83.69 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 67.7% to close the last trading session at $7.68.
It’s no surprise that CGNT has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #4 out of 134 stocks in the Software – Application industry. It has an A grade for Sentiment and a B for Growth, Value, and Quality. Click here to see CGNT’s rating for Momentum and Stability.
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.
DRKTY shares were trading at $7.30 per share on Thursday afternoon, down $0.53 (-6.77%). Year-to-date, DRKTY has gained 54.99%, versus a 15.55% 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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