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Outlook for Business-Software Services Stocks Appears Bright
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The Zacks Business-Software Services industry primarily comprises companies that deliver application-specific software products and services. The offerings include applications related to finance, human resource and supply chain among others. Manufacturing, retail, banking, insurance, telecommunication, healthcare and public sectors are the primary end-markets for the industry participants.
Here are the industry’s three major themes:
The companies in this industry are benefiting from robust demand for multi cloud-enabled software solutions, given the ongoing transition from legacy platforms to modern cloud-based infrastructure. The industry players are incorporating artificial intelligence (AI) and tools like machine learning (ML) in their applications to make them more dynamic and result oriented. Escalated demand for enterprise software, which is ramping up productivity and improving decision-making process, is a key catalyst. Additionally, business software providers are keeping pace with global regulatory and business practice regulations, such as General Data Protection Regulation (GDPR) or Privacy Shield, thereby helping customers incorporate industry-best practices while complying with the governmental and industry norms.
The industry participants are modifying their business model to cope with the clients’ changing requirements. Subscription and term-licence based revenue pricing models have become extremely popular and these are replacing the legacy upfront payment prototype. Although top-line growth of these companies is expected to suffer in the near term due to this transition, increased revenue visibility and higher recurring revenues bode well for investors in the long haul.
Most industry players are now offering a cloud-based version of their solutions in addition to the on-premise one, thereby expanding content accessibility. The enhanced interoperability feature provides customers with differentiation and efficiency. Moreover, the companies in this industry are resorting to frequent mergers and acquisitions to supply complementary and end-to-end software products. Moreover, partnerships with major cloud providers like Microsoft Azure and Amazon Web Services (AWS) are strengthening the companies’ product portfolio.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Business-Software Services industry is housed within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank #65, which places it at the top 25% of 256 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Business - Software Services Industry has underperformed the Zacks S&P 500 Composite over the past year as well as the broader Zacks Computer and Technology Sector.
The industry has declined 6.2% against the S&P 500’s rise of 4.3% and the broader sector’s 1.4% growth.
One-Year Price Performance
Industry’s Current Valuation
Comparing the industry with the Zacks S&P 500 Composite on the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing business-software services stocks, we see, the industry’s ratio of 25.55 is higher than the S&P 500’s 17.15 and the sector’s 19.83.
Over the last five years, the industry has traded as high as 25.78X, as low as 19.34X and recorded a median of 23.01X as the charts below show.
Price-to-Earnings (P/E) Ratio (F1)
Price-to-Earnings (P/E) Ratio (F1)
Bottom Line
Business-Software Services companies are trying to fast adapt to the changing user needs. Focus on providing offerings that address the need for transparency and efficiency in organizations augurs well for the industry participants.
Foster City, CA-based Guidewire Software, Inc. (GWRE - Free Report) is a provider of software solutions for property and casualty (P&C) insurers. This stock with a Zacks Rank of 1 has soared 73.2% in the past year. The Zacks Consensus Estimate for current fiscal year earnings has been revised 6.2% upward to $1.38 over the past 30 days.
Price and Consensus: GWRE
Based in New York, NY, MSCI Inc. (MSCI - Free Report) is a provider of investment decision support tools. This stock with a Zacks Rank of 2 has skyrocketed 315.4% in a year. The Zacks Consensus Estimate for its current fiscal year earnings has moved 2 cents north to $6.01 over the past 30 days.
Price and Consensus: MSCI
Moreover, below are two stocks from the same space with a Zacks Rank #3 (Hold) that investors can hold onto.
Headquartered in Teaneck, NJ, Cognizant Technology Solutions Corporation (CTSH - Free Report) is a leading provider of custom software development, integration and maintenance services that link e-business with core information systems for companies worldwide. The stock has surged 41.2% in a year’s time. The Zacks Consensus Estimate for current fiscal year earnings has been stable at $4.59 over the past 30 days.
Price and Consensus: Cognizant
Fremont, CA-domiciled SYNNEX Corporation (SNX - Free Report) , a business process services company providing business-to-business services, has seen a 50.5% rise in share price over the past year. The Zacks Consensus Estimate for current fiscal year earnings has been flat at $11.81 over the past 30 days.
Price and Consensus: SYNNEX
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Outlook for Business-Software Services Stocks Appears Bright
The Zacks Business-Software Services industry primarily comprises companies that deliver application-specific software products and services. The offerings include applications related to finance, human resource and supply chain among others. Manufacturing, retail, banking, insurance, telecommunication, healthcare and public sectors are the primary end-markets for the industry participants.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Business-Software Services industry is housed within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank #65, which places it at the top 25% of 256 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Business - Software Services Industry has underperformed the Zacks S&P 500 Composite over the past year as well as the broader Zacks Computer and Technology Sector.
The industry has declined 6.2% against the S&P 500’s rise of 4.3% and the broader sector’s 1.4% growth.
One-Year Price Performance
Industry’s Current Valuation
Comparing the industry with the Zacks S&P 500 Composite on the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing business-software services stocks, we see, the industry’s ratio of 25.55 is higher than the S&P 500’s 17.15 and the sector’s 19.83.
Over the last five years, the industry has traded as high as 25.78X, as low as 19.34X and recorded a median of 23.01X as the charts below show.
Price-to-Earnings (P/E) Ratio (F1)
Price-to-Earnings (P/E) Ratio (F1)
Bottom Line
Business-Software Services companies are trying to fast adapt to the changing user needs. Focus on providing offerings that address the need for transparency and efficiency in organizations augurs well for the industry participants.
Below are two stocks that either sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Foster City, CA-based Guidewire Software, Inc. (GWRE - Free Report) is a provider of software solutions for property and casualty (P&C) insurers. This stock with a Zacks Rank of 1 has soared 73.2% in the past year. The Zacks Consensus Estimate for current fiscal year earnings has been revised 6.2% upward to $1.38 over the past 30 days.
Price and Consensus: GWRE
Based in New York, NY, MSCI Inc. (MSCI - Free Report) is a provider of investment decision support tools. This stock with a Zacks Rank of 2 has skyrocketed 315.4% in a year. The Zacks Consensus Estimate for its current fiscal year earnings has moved 2 cents north to $6.01 over the past 30 days.
Price and Consensus: MSCI
Moreover, below are two stocks from the same space with a Zacks Rank #3 (Hold) that investors can hold onto.
Headquartered in Teaneck, NJ, Cognizant Technology Solutions Corporation (CTSH - Free Report) is a leading provider of custom software development, integration and maintenance services that link e-business with core information systems for companies worldwide. The stock has surged 41.2% in a year’s time. The Zacks Consensus Estimate for current fiscal year earnings has been stable at $4.59 over the past 30 days.
Price and Consensus: Cognizant
Fremont, CA-domiciled SYNNEX Corporation (SNX - Free Report) , a business process services company providing business-to-business services, has seen a 50.5% rise in share price over the past year. The Zacks Consensus Estimate for current fiscal year earnings has been flat at $11.81 over the past 30 days.
Price and Consensus: SYNNEX
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Click to get it free >>