From commerce to culture, software is digitizing every aspect of our lives. The undeniable tailwinds fueling the industry have also led to strong returns for SaaS stocks lately as they’ve gained 30.2% over the past six months, outpacing the S&P 500’s 9% rise.
Although these businesses have produced results, only the best will survive over the long term as AI is eating into the profits of those with lower switching costs. On that note, here is one software stock boasting a durable advantage and two that may face trouble.
Market Cap: $5.05 billion
Founded in 1999 as one of the first subscription security companies, Qualys (NASDAQ:QLYS) provides organizations with software to assess their exposure to cyber-attacks.
Why Do We Think Twice About QLYS?
Average billings growth of 6.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
Estimated sales growth of 7.1% for the next 12 months implies demand will slow from its three-year trend
Free cash flow margin is forecasted to shrink by 1.7 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $143.76 per share, Qualys trades at 8.2x forward price-to-sales. Check out our free in-depth research report to learn more about why QLYS doesn’t pass our bar.
Market Cap: $5.05 billion
Founded in 2005 by Aaron Levie and Dylan Smith, Box (NYSE:BOX) provides organizations with software to securely store, share and collaborate around work documents in the cloud.
Why Are We Cautious About BOX?
Muted 8.5% annual revenue growth over the last three years shows its demand lagged behind its software peers
Customers had second thoughts about committing to its platform over the last year as its average billings growth of 5% underwhelmed
Estimated sales growth of 6.2% for the next 12 months implies demand will slow from its three-year trend
Box is trading at $35.35 per share, or 4.6x forward price-to-sales. Read our free research report to see why you should think twice about including BOX in your portfolio, it’s free.
Market Cap: $1.75 billion
Founded in 2009, Integral Ad Science (NASDAQ:IAS) provides digital advertising verification and optimization solutions, ensuring that ads are viewable by real people in brand-safe environments across various platforms and devices.
Why Are We Fans of IAS?
Superior software functionality and low servicing costs result in a top-tier gross margin of 78.7%
Healthy operating margin of 10% shows it’s a well-run company with efficient processes, and its profits increased over the last year as it scaled
Strong free cash flow margin of 20.8% enables it to reinvest or return capital consistently
