The growing use of edge computing and artificial intelligence (AI), and increased IT spending to adopt these technologies to serve a bigger market efficiently, have been driving the growth of the business software and services industry. The rising utilization of cloud-based platforms has sparked demand for cloud-based software solutions and services from small- and medium-sized businesses. Also, the increasing use of sophisticated technologies, such as block chain, hybrid architecture and machine learning, are expected to contribute to the software industry’s growth. The software industry is expected to hit $9.29 billion between 2021 – 2025, growing at a CAGR of almost 3%.
While the large-cap players in the software space have grown significantly, capitalizing on the industry tailwinds, and their shares are trading at lofty valuations, small- and medium-sized companies still have plenty of room to grow. In fact, the Fed’s decision to hold benchmark interest rates low has been benefiting small- and medium-sized enterprises by giving them more capacity to borrow and grow their operations.
Therefore, we believe fundamentally sound small-cap software stocks Progress Software Corporation (PRGS – Get Rating), QAD Inc. (QADA – Get Rating), and Absolute Software Corporation (ABST – Get Rating) could be solid bets now.
Bedford, Mass.-based PRGS creates software applications. OpenEdge, Data Connectivity and Integration (DCI), and Application Development and Deployment are the three segments through which the company operates. It provides customer resource management, project management, network monitoring solution, and other web application services.
Last month, PGRS’ MOVEit file transfer won 21 honors in G2’s Summer 2021 Grid Report for Managed File Transfer, including honors for Easiest to Use, Easiest Admin, Best Usability, Highest User Adoption, Fastest Implementation, and Best ROI. These kudos should enable the company to stand out in the market and boost its brand identity.
During its second fiscal quarter, ended May 31, 2021, PRGS’ non-GAAP revenue increased 20.7% year-over-year to $260.98 million. Its non-GAAP income from operations increased 21.5% year-over-year to $106.37 million, while its non-GAAP net income climbed 24.8% from the prior-year quarter to $79.01 million. Its non-GAAP EPS grew 26.4% from the prior-year quarter to $1.77.
A $3.49 consensus EPS estimate for the current year represents a 12.90% improvement year-over-year. Furthermore, PRGS has an impressive earnings surprise history. It beat the consensus EPS estimates in each of the trailing four quarters. The $534 million consensus revenue estimate for the current year represents a 16.9% increase from the same period last year. The stock has gained 22% over the past year and 4% over the past three months.
PRGS’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PRGS is also rated an A grade for Quality and a B for Value and Sentiment. Within the D-rated Software-Application industry, it is ranked #7 of 130 stocks. To see additional POWR Ratings for Momentum, Growth, and Stability for PRGS, click here.
Note that PRGS is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
QADA is a manufacturer of vertically oriented enterprise software solutions for the automotive, health sciences, consumer products, food and beverage, high technology, and industrial products industries. The Santa Barbara, Calif., company also provides operational requirements, such as financials, production, demand, supply chain planning, and measurement and management of business operations.
Last month, QADA and JK Tech agreed to work together as a system integrator. JK Tech will deploy QAD Adaptive Applications’ range of solutions, which includes QAD Adaptive ERP, under the conditions of the agreement. This will help QADA to…
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