Enterprise software stocks are gaining from a strong digital transformation environment. Major breakthroughs in cloud computing, predictive analysis, AI, virtual assistants, robotics and IoT, have set the stage for solid growth in the enterprise software industry.
The uptrend is evident from strong performance of Invesco Dynamic Software ETF (PSJ), which has surged 32.4% year to date. Moreover, iShares North American Tech-Software ETF (IGV) and SPDR S&P Software & Services ETF (XSW) have gained 26.7% and 31.1%, respectively.
Notably, software companies are focusing on enterprise clientele which is enabling them to counter volatility in the broader technology sector. Robust demand fundamentals and increase in spend on software procurement remain key catalysts in this regard.
Robust Initiatives to Expand Enterprise Clientele: Key Catalyst
Software companies are making every effort to enhance their applications portfolio by integrating AI and automated data analytics capabilities into their offerings.
The companies are extending capabilities of software applications with implementation of cloud-based secure APIs (or application program interface). This is resulting in higher adoption of SaaS-based business productivity offerings over on-premise solutions.
Moreover, enterprise software companies are providing customized solutions to enable its clientele in maximizing engagement with customers. In fact, the companies are empowering smart assistants by leveraging natural language processing (NLP) technology that is helping market expansion.
Additionally, demand for cloud infrastructure monitoring, collaborative platforms, web-based application performance management, human capital management (HCM), and cyber security software are increasing rapidly.
Higher Spend Induces Optimism
Gartner estimates enterprise software spending to record highest growth of 9% in 2019 to reach $457 billion, on account of migration to cloud and digital transformation efforts. The tally is projected to hit $507 billion in 2020, driven by increasingly popularity of SaaS-based offerings over on-premise counterparts.
In fact, enterprises intend to rapidly migrate to cloud and DevOps technologies for achieving scalability and agility in favor of software development and IT operations, to deliver a flawless digital experience to clients.
Moreover, per ResearchAndMarkets data, worldwide enterprise software market is envisioned to hit $575 billion by 2024.
Making the Right Choice
The immense prospects of the enterprise software companies make it difficult to pick the right stock. It is here that the Growth Style Score comes in handy. Our Growth Style Score condenses all the essential metrics from the company’s financial statements to achieve a true sense of quality and sustainability of its growth.
Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) when combined with Growth Score of A or B offer the best investment opportunities in the growth investing space.
Year-to-Date Price Performance
We have zeroed in on five stocks riding on expanding enterprise clientele in the ongoing digital transformation era, each carrying a Zacks Rank #2, with the favorable combination.
Cadence Design Systems CDNS is benefiting from strong demand for its solutions that strives to meet complex computing needs of 5G and AI applications. The company’s expanding clientele is a major growth driver.
The company has a Growth Score of A. Current year earnings estimate has remained steady in the past 30 days at $2.15, indicating year over year growth of almost 15%.
Cornerstone OnDemand CSOD is well poised to gain from robust adoption of inclusive learning talent management and learning SaaS-based platforms. The company is expanding its online learning content portfolio across LinkedIn (Lynda), PluralSight, and SkillSoft, which favors business prospects.
The company has a Growth Score of A. Current year earnings estimate has remained steady in the past 30 days at $1.02, representing year over year growth of 37.8%.
Microsoft MSFT has a noteworthy position in the enterprise software market. The company’s expanding Office 365 clientele, which now includes latest DOD contract win, remains quintessential in this regard.
The tech giant’s efforts to enhance capabilities of its Office and Dynamics CRM businesses and LinkedIn augur well. Moreover, enhancements to Azure and AI expertise hold promise.
The company has a Growth Score of B. The Zacks Consensus Estimate for fiscal 2020 earnings has remained steady in the past 30 days at $5.22, indicating year over year growth of 9.9%.
Synopsys SNPS is benefiting from increasing global design activity and customer engagements.
Robust adoption of its advance solutions, including Fusion Design Platform, Custom Compiler and Verification Continuum platform from semiconductor companies and large cloud hyperscalers remain noteworthy.
The company has a Growth Score of B. The Zacks Consensus Estimate for fiscal 2019 earnings has been revised 3.4% upward in the past 30 days to $4.51. The figure translates to year over year growth of 15.4%.
Progress Software PRGS is benefiting from adoption of its business applications development software. Robust adoption of the company’s offerings including Kinvey, Sitefinity, NativeScript, aimed at enhancing business processes, is a key catalyst.
The company has a Growth Score of B. The Zacks Consensus Estimate for fiscal year 2019 earnings per share has remained steady in the past 30 days at $2.59, representing year over year growth of 4%.