Twenty years ago, very few companies employed a software-as-a-service (SaaS) business model. But now, that’s changed, as it’s become widespread in the software industry. SaaS is a type of licensing model where access to software is provided on a subscription basis. The software is located on an external server. Customers access it through a web browser instead of on their computers’ hard drives.
The SaaS business model, for the most part, has become synonymous with the rise of the cloud, as software is accessed through the cloud. Software hosted on the cloud not only provides a time-saving option for companies to update their software but is also less expensive for customers. Previously, consumers would have to buy multiple software products at once, which could get quite costly. The SaaS model, on the other hand, makes it much more cost-effective, especially at the front end.
For a SaaS company, the subscription model provides a steady stream of revenue instead of convincing its customers to upgrade to new products. With so many SaaS companies to pick from, it can be difficult for investors to narrow their choices. That’s why I’ve narrowed down my list to SaaS stocks with solid growth catalysts and Buy ratings in our POWR Ratings service, which is why I am highlighting Salesforce.com Inc (CRM – Get Rating), Microsoft Corp. (MSFT – Get Rating), and Adobe Inc. (ADBE – Get Rating) below.
CRM is currently the largest Customer Relationship Management vendor globally with a 30% market share in the sales force automation space. Approximately 90% of the Fortune 100 companies use at least one CRM software. The company is well-positioned to continue capturing more of the $130 billion market. CRM is a leader in each of the markets it serves. Its customer retention has been steadily improving over time.
CRM has been a direct beneficiary of the move to the cloud. It is benefiting from increased demand as customers continue to go digital. The rapid adoption of its cloud-based offerings is what is driving demand for its products. CRM has been adding more features to its offerings, including customer service, marketing automation, e-commerce, analytics, and artificial intelligence. And each of them is tightly integrated. Plus, the company has emphasized expanding its margin in recent quarters.
The stock has an overall grade of B, which translates into a Buy in our POWR Ratings system. The company has a Growth Grade of B, which isn’t surprising as revenue is expected to soar 21.5% year over in the current quarter. In addition, earnings are forecasted to rise 25.7% in the same quarter. CRM also has a Quality Grade of B due to its strong balance sheet. The stock has a current ratio of 1.2, which indicates it has more than enough liquidity to handle short-term debt.
We also provide grades on CRM based on Value, Momentum, Stability, and Sentiment. You can find those here. CRM is ranked #12 in the Software – Business industry. You can find other top-ranked stocks in the industry by clicking here.
MSFT needs no introduction as one of the largest technology providers in the world. The company dominates the PC software market with an 80% market share in operating systems. If you think of buying software fifteen years ago, the first thing that pops into most people’s minds is the CD-ROMs for the Microsoft Office Suite. While Office still dominates, it’s now run on a SaaS model.
The company holds a near-monopoly on productivity software and operating systems. The switch to subscription services provides the company reliable income and improving margins. But the PC market is not the only place where MSFT shines. Its cloud offering, Azure, is the company’s largest and fastest-growing business and a leading player in the space. Its Microsoft Teams offering is also based on a subscription.
MSFT has an overall grade of…
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