Software-as-a-service (SaaS) has been gaining popularity since the onset of the COVID-19 pandemic because the remote lifestyle incentivized companies to digitize their operations rapidly. Given the ongoing digital transformation of almost every industry worldwide, the demand for SaaS is expected to increase. The global SaaS market is expected to grow at an 18.8% CAGR over the next eight years to $703.19 billion by 2030.
But despite bullish industry growth prospects, shares of most SaaS companies have been retreating lately due to the current tech rout. And because the Fed has already raised interest rates and plans further hikes, tech stocks might remain under pressure. However, as COVID-19 cases surge again in several countries, a likely extension of work-from-home arrangements could help SaaS stocks rebound soon.
With these factors in mind, we think quality SaaS stocks Descartes Systems Group Inc (DSGX), Informatica Inc. (INFA), and MiX Telematics Limited (MIXT) could be solid bets now.
Click here to check out our Software Industry Report for 2022
Descartes Systems Group Inc (DSGX)
DSGX is a Waterloo, Canada-based tech company that provides cloud-based logistics and supply chain management business process solutions. Its offerings include B2B service communication, customs, and regulatory compliance, broker and forwarder enterprise systems, global trade intelligence, e-commerce shipping and fulfillment, transportation management and routing, mobile, and telematics.
On February 10, DSGX acquired NetCHB, a leading provider of customs filling solutions, for $40 million, with additional performance-based consideration of $20 million. The acquisition is expected to help DSGX process high volumes of e-commerce shipments and manage the lifecycle of shipments, allowing it to expand its customer base.
Also last month, Atlantic Tire and SEKO Logistics entered strategic agreements with DSGX to use the latter’s cloud-based route planning solutions and other services. These partnerships reflect DSGX’s strong market position and brand recognition.
DSGX’s total revenue increased 20.3% year-over-year to $112.37 million for the fourth quarter, which ended Jan. 31, 2022. Its income from operations grew 18.7% from its year-ago value to $26 million, while its net income improved 11.6% year-over-year to $19.19 million. The company’s EPS increased 10% from the year-ago value to $0.22.
The $114.19 million consensus revenue estimate for its fiscal first quarter (ending April 30, 2022) represents a 15.5% increase from the same period last year. In addition, the Street expects the company’s EPS to rise at a 26% CAGR over the next five years.
Shares of DSGX have gained 21.3% in price over the past year to close yesterday’s trading session at $75.16.
DSGX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. DSGX has a B grade for Stability, Sentiment, and Quality. The stock is ranked #4 of 24 in the Software - SAAS industry.
In addition to the grades I have just highlighted, view DSGX ratings for Growth, Value, and Momentum here.
Informatica Inc. (INFA)
INFA is a leading enterprise cloud data management platform that is based in Redwood City, Calif. It is an end-to-end, cloud-native artificial intelligence (AI)-powered Intelligent Data Management Cloud (IDMC) platform that is designed to assist businesses to pioneer their data on any cloud, multi-cloud, hybrid system. INFA made its stock market debut through a traditional initial public offering on Oct. 29, 2021. The company listed 29 million shares priced at $29 each, raising $841 million.
On March 9, INFA was ranked #2 in the Enterprise category and included in the 2022 World’s Most Innovative Companies by Fast Company.
And on March 2, INFA launched Intelligent Multi-domain Master Data Management (MDM), which is designed to assist enterprises in connecting and managing multiple domains and amplifying every function with intelligence. Organizations can control activities relating to data management with a bird’s eye view.
INFA has also partnered with Wipro Limited (WIT) to accelerate digital transformation for its joint consumers. Given the increasing demand for data automation and cloud services, this partnership is expected to boost INFA’s customer base and revenues significantly.
INFA’s total revenues increased 8% year-over-year to $406.71 million for the fourth quarter, ended Dec. 31, 2021. The company’s subscription revenues increased 23% year-over-year to $229.72 million. Its non-GAAP net income increased 6% year-over-year to $ 54.01 million, while gross profit grew 6.2% year-over-year to $311.92 million.
The $1.80 billion consensus revenue estimate for its fiscal year 2023 indicates a 12.8% improvement year-over-year. In addition, the Street expects the company’s EPS to rise 38% from the same period last year to $0.97 next year. The stock has declined 7.2% in price over the past month.
INFA’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. INFA also has a B grade for Growth, Value, and Sentiment. In addition, it is ranked #3 of 24 stocks in the Software - SAAS industry.
To see additional POWR Ratings for Quality, Momentum. and Stability for INFA, click here.
MiX Telematics Limited (MIXT)
MIXT is a Midrand, South Africa-based fleet and mobile asset management solutions provider. MIXT’s solutions include MiX Fleet Manager, MiX Asset Manager, Matrix, Beam-e, and MiX Now. The company has actively managed more than 750,000 mobile assets in more than 120 countries.
On March 2, MIXT partnered with Australia-based SGESCO-MAX to deliver an integrated, end-to-end fleet ecosystem. SGESCO-MAX will be licensed to install and integrate two key MiX offerings. This partnership effectively expands MIXT’s services in the Australian market.
MIXT’s total revenue increased 6.2% year-over-year to $36.21 million in its fiscal year 2022 third quarter, ended Dec. 31, 2021. The company’s subscription revenues increased 4.3% year-over-year to $30.32 million. Its gross profit came in at $22.45 million, reflecting a 5.4% rise from the prior-year quarter.
Analysts expect MIXT’s EPS and revenue to increase 16.2% and 5.8%, respectively, year-over-year to $0.31 and $143.22 million.
Over the past three months, the stock has gained 6.3% in price to close the last trading session at $12.00.
It is no surprise that MIXT has an overall B rating, which translates to Buy in our POWR Ratings system. In addition, MIXT has an A grade for Value and Sentiment. Also, it is ranked #2 of 16 stocks in the Software - SAAS industry.
Click here to see MIXT ratings for Growth, Quality, Momentum, and Stability.
Click here to check out our Software Industry Report for 2022
DSGX shares were unchanged in premarket trading Friday. Year-to-date, DSGX has declined -9.10%, versus a -8.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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