Software stocks were among the hardest hit in the recent market correction due to inflationary concerns, increasing interest rates, semiconductor shortages, and geopolitical crisis owing to Russia’s invasion of Ukraine. As a result, the market volatility surged dramatically, and the CBOE Volatility Index jumped 31.8% over the past three months. Due to the prevailing market fears, investors began to flee the tech growth stocks. The selloff in tech stocks stumbled the U.S. equity indexes. The tech-centric NASDAQ Composite index declined 13% year-to-date.
However, many software stocks are now undervalued and have promising long-term growth prospects. These stocks are expected to recover in the coming months, which makes now a great time to buy them at a discount.
Today I’ll take a look at two cheap software stocks: Informatica Inc. (INFA) and ChannelAdvisor Corporation (ECOM).
Click here to check out our Software Industry Report for 2022
Informatica Inc. (INFA)
INFA developed an artificial intelligence-powered platform that connects and manages data across multi-cloud hybrid systems at an enterprise scale in the U.S. The company’s product portfolio includes data integration products, API and application integration products, data management products, business 360 products, and data catalog products. In addition, INFA provides maintenance and professional services.
This February, INFA expanded its partnership with Wipro Limited (WIT), a leading business process services company, to power customers’ digital transformation. This partnership covers the joint solutions, including automated cloud modernization, multi-cloud master data management, automated data integration, and real-time intelligence with analytics.
In the fiscal 2021 fourth quarter ended December 31, 2021, INFA's total revenues increased 8% year-over-year to $406.71 million. INFA's gross profit grew 6.2% year-over-year to $311.92 million. The company's net income rose 6% from the prior-year period to $54.01 million.
INFA is relatively undervalued compared to its peers. In terms of forward Price/Book, INFA is currently trading at 2.46x, 48.7% lower than the industry average of 4.80x. Its forward Price/Sales multiple of 3.16 is marginally lower than the industry average of 3.19x.
The consensus revenue estimate of $1.60 billion for the fiscal year 2022 ending December 2022 represents a 10.7% year-over-year growth from the last year 2021.
The stock declined 50.9% year-to-date and 49.6% over the past three months. It closed yesterday's trading session at $18.15.
INFA's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
INFA has a grade of B for Value and Growth. Within the Software - SAAS industry, it is ranked #4 of 24 stocks.
To see additional POWR Ratings (Momentum, Stability, Quality, and Sentiment) for INFA, click here.
ChannelAdvisor Corporation (ECOM)
ECOM offers software-as-a-service (SaaS) solutions in the U.S. and internationally. The company’s cloud platform SaaS assists brands and retailers in improving their e-commerce operations, expanding to new channels, and boosting their sales. ECOM’s suite of solutions includes a marketplaces module, digital marketing module, shoppable media module, and brand analytics module. It serves customers, online businesses, retailers, and advertising agencies.
Last October, ECOM’s multichannel commerce platform included solutions for sellers within the Amazon Local Selling program to help sellers grow their businesses. The sellers can manage the in-store pickup experience with the new solutions. This is expected to expand ECOM’s customer reach and boost profitability.
ECOM's revenue increased 12.7% year-over-year to $45.45 million in the fiscal 2021 fourth quarter ended December 31, 2021. Its gross profit improved 10.5% year-over-year to $35.33 million. ECOM's income from operations increased 8.7% year-over-year to $9.76 million. Its adjusted EBITDA grew marginally from the year-ago value to $11.17 million. The company's net income grew 450.1% year-over-year to $33.67 million. Its net income per share rose 430% year-over-year to $1.06.
ECOM is trading at a discount to its peers. In terms of forward EV/EBITDA, ECOM is currently trading at 10.37x, 19% lower than the industry average of 12.80x. Its forward Price/Sales multiple of 2.73 is 14.2% lower than the industry average of 3.19x. ECOM's forward EV/Sales ratio of 2.10 compared with the industry average of 3.07.
Analysts expect ECOM's revenue for the fiscal 2022 first quarter ending March 2022 to come in at $42.08 million, representing a 7.4% rise year-over-year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of all the trailing four quarters.
Shares of ECOM slumped 32.9% year-to-date. ECOM closed yesterday's trading session at $16.57.
ECOM's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a grade of A for Sentiment. It has a B grade for Value and Quality. Within the Software-Application industry, it is ranked #17 of 163 stocks.
To see additional component grades of POWR Ratings (Growth, Stability, and Momentum) for ECOM, click here.
INFA shares were unchanged in after-hours trading Thursday. Year-to-date, INFA has declined -49.35%, versus a -7.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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