1 Software Stock with Competitive Advantages and 2 to Approach with Caution

Yahoo

17 hours ago

From commerce to culture, software is digitizing every aspect of our lives. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as the high prices exposed them to big drawdowns, and unfortunately, the industry has tumbled by 8.8% over the last six months. This drop was disheartening since the S&P 500 stood firm.
Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. On that note, here is one resilient software stock at the top of our wish list and two we're swiping left on.
Market Cap: $3.23 billion
Founded in 2009 by enterprise software veteran Tom Seibel, C3.ai (NYSE:AI) provides software that makes it easy for organizations to add artificial intelligence technology to their applications.
Why Are We Wary of AI?
Annual revenue growth of 15.5% over the last three years was below our standards for the software sector
Extended payback periods on sales investments suggest the company's platform isn't resonating enough to drive efficient sales conversions
Poor expense management has led to operating margin losses
At $24.25 per share, C3.ai trades at 7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than AI.
Market Cap: $1.52 billion
Founded in 2000 with the idea that network security comes before endpoint security, Rapid7 (NASDAQ:RPD) provides software as a service that helps companies understand where they are exposed to cyber security risks, quickly detect breaches and respond to them.
Why Are We Out on RPD?
Offerings struggled to generate meaningful interest as its average billings growth of 4.6% over the last year did not impress
Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its three-year trend
Projected 2.5 percentage point decline in its free cash flow margin next year reflects the company's plans to increase its investments to defend its market position
Rapid7 is trading at $23.73 per share, or 1.8x forward price-to-sales. To fully understand why you should be careful with RPD, check out our full research report (it's free).
Market Cap: $63.88 billion
Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ:ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.
Why Does ADSK Stand Out?
Billings growth has averaged 23.1% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
Software is difficult to replicate at scale and leads to a best-in-class gross margin of 92%
Excellent operating margin of 20.3% highlights the efficiency of its business model
Autodesk's stock price of $297.02 implies a valuation ratio of 9x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it's free.
Donald Trump's victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.