Software solutions have been playing an important role in rapid, global, digitalization, which has been accelerated by the COVID-19 pandemic. Even though investors’ rotation away from expensive tech stocks amid the economic recovery this year is affecting software stocks, there is considerable interest by investors in financially strong software companies.
Investors’ interest in the software stocks is evident in the SPDR S&P Software & Services ETF (XSW) and Invesco Dynamic Software ETF’s (PSJ) 14.3% and 14.1% returns, respectively, over the past six months.
As companies continue developing new products and services that leverage advanced technologies, the demand for software solutions should grow further in the coming months. In fact, according to Gartner, global enterprise software spending is expected to rise 10.8% and 10.6% in 2021 and 2022, respectively. Consequently, we think it wise to bet on shares of UiPath Inc. (PATH), Fortinet, Inc. (FTNT), and NortonLifeLock Inc. (NLOK) now. These companies are expected to see impressive growth in the coming quarters based on their continued innovations and rising demand for their solutions.
Click here to check out our Software Industry Report for 2021
UiPath Inc. (PATH)
Enterprise automation software company PATH provides an end-to-end automation platform that offers a range of robotic process automation (RPA) solutions. The company’s offerings include UiPath Robots and UiPath Orchestrator. It serves various industries, including business process outsourcing (BPO), finance and banking, insurance, and healthcare.
PATH went public on April 21, 2021 in one of the largest U.S. software IPOs in history. The stock climbed 23% on the day following its stock market debut, closing at $69. The company’s CEO, Daniel Dines, said to CNBC, “I believe that we can build a generational company that will completely shape the way people work.” PATH is scheduled to release its fiscal first quarter (ended April 30, 2021) financial reports on June 8.
Analysts expect the company’s annual revenue to increase 36% year-over-year to $826.24 million in its fiscal year 2022. Its EPS is expected to increase 24.1% year-over-year in fiscal 2023.
On May 11, 2021, PATH announced its integration with Tableau to enable Tableau users to deploy UiPath robots to automatically perform actions and trigger downstream business processes. Because the integration helps simplify repetitive tasks, PATH is expected to benefit. The stock has rallied 12.2% over the past month to close yesterday’s trading session at $84.
PATH’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. We’ve rated PATH for Sentiment, Quality, Value, Growth, Stability and Momentum. Click here to access all of PATH’s ratings.
PATH is ranked #37 of 60 stocks in the Software-Business industry.
Fortinet, Inc. (FTNT)
FTNT is a network security company that provides cyber security solutions to a range of enterprises, service providers and government organizations worldwide. Its offerings include FortiGate hardware and software licenses, FortiSwitch product family, and FortiAnalyzer product family.
The company’s sales surged 23% year-over-year to $710.30 million for its fiscal first quarter, ended March 31. FTNT’s net income came in at $107.20 million for the quarter, up 2.5% from the prior-year period. Also, its EPS increased 8.2% year-over-year to $0.70.
Analysts expect FTNT’s EPS to increase 8% from the prior-year period to $0.95 for the quarter ending September 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Furthermore, its revenue is expected to be $743.75 million for the current quarter, ending June 30, 2021, which represents a 20.8% year-over-year rise.
On May 25, FTNT announced that TELUS Corporation’s (TU) subsidiary Secure Sense chose its Fortinet Secure SD-WAN to power the company’s Secure SD-WAN managed services offerings. The stock has gained 50.4% over the past year to close yesterday’s trading session at $214.57.
FTNT’s promising outlook is reflected in its POWR Ratings. The stock has an A grade for Quality. Click here to access FTNT’s ratings for Momentum, Stability, Growth, Value and Sentiment as well.
FTNT is ranked #9 of 24 stocks in the Software-Security industry.
NortonLifeLock Inc. (NLOK)
NLOK provides cyber safety solutions to consumers worldwide. Its Norton-branded services provide multi-layer security and identity protection on desktop and mobile operating systems to defend against online threats to individuals, families and small businesses. Its products include AntiVirus Plus, Norton 360 Standard, and Norton 360 Deluxe.
The company’s net sales came in at $672 million for fiscal fourth quarter, ended April 2, 2021, which represents a 9.5% year-over year advance. Its gross profit for the quarter came in at $573 million, up 10.8% year-over-year. Its operating income for the quarter was $266 million, up 504.5% year-over-year. Its non-GAAP EPS increased 53.8% year-over-year to $0.40.
For the current quarter ending June 30, 2021, analysts expect NLOK’s EPS to increase 32.3% from the prior-year quarter to $0.41. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to be $684.68 million in the current quarter, which represents a 14.2% year-over-year increase.
In January, NLOK announced the expansion of its Norton 360 protective window for the gaming community. This is expected to provide a boost to the company’s sales in the near-term and expand its footprint in the gaming industry. The stock has surged 34.6% over the past year to close yesterday’s trading session at $27.23.
It’s no surprise that NLOK has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Quality and a B grade for Growth, Sentiment and Value. Click here to see the additional POWR Ratings for NLOK (Momentum and Stability).
NLOK is ranked #1 in the Software-Security industry.
Click here to check out our Software Industry Report for 2021
PATH shares were trading at $83.95 per share on Wednesday morning, down $0.05 (-0.06%). Year-to-date, PATH has gained 21.67%, versus a 12.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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