Software is eating the world, and virtually nothing is left untouched by it. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the last six months, the industry’s 30.4% return has topped the S&P 500 by 20.1 percentage points.
However, competition is fierce because many recognize the benefits of software business models, making it hard to separate the winners that can turbocharge your portfolio from the losers that can break it. Keeping that in mind, here are three software-as-a-service stocks poised to generate market-beating returns.
ServiceNow (NOW)
Market Cap: $221.8 billion
Founded by Fred Luddy, who coded the company's initial prototype on a flight from San Francisco to London, ServiceNow (NYSE:NOW) is a software provider helping companies automate workflows across IT, HR, and customer service.
Why Should You Buy NOW?
ARR growth averaged 24.2%, showing customers are willing to take multi-year bets on its offerings
Software platform plays an irreplaceable role in customer workflows as its net revenue retention rate punches in at 125%
NOW is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
ServiceNow’s stock price of $1,057 implies a valuation ratio of 17.9x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Shopify (SHOP)
Market Cap: $142.4 billion
Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) provides a software platform for building and operating e-commerce businesses.
Why Are We Bullish on SHOP?
Payment activity on its platform is soaring as its TPV growth averaged 31.1%, enabling the company to collect more fees and upsell complementary products such as loans and AI-driven inventory management
Fast sales cycles show the company’s software is easy to implement and allows it to onboard many customers concurrently
Operating profits increased over the last year as it gained some leverage on its fixed costs and became a more efficient business
Shopify is trading at $110.18 per share, or 14.4x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Cloudflare (NET)
Market Cap: $38.64 billion
Founded by two grad students of Harvard Business School, Cloudflare (NYSE:NET) is a software-as-a-service platform that helps improve the security, reliability, and loading times of internet applications.
Why Do We Love NET?
Billings have averaged 24.8% growth, showing it’s securing new contracts that could potentially increase in value over time
Market share will likely rise over the next 12 months as its expected revenue growth of 25.6% is robust
User-friendly software allows clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
At $112.58 per share, Cloudflare trades at 19.5x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,704% between September 2019 and September 2024) as well as under-the-radar businesses like Axon (+604% five-year return). Find your next big winner with StockStory today for free.