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4 SaaS Stocks to Count On for Stellar Gains

Tirthankar Chakraborty

Several technology stocks got hammered by the current market gyrations. But, a number of software companies held their ground. Software stocks performed well mostly due to corporate outlays on information technology and digital projects gaining steam. Another reason behind software stocks’ success is spike in merger and acquisition activities.

Now, if you feel tempted to look for the best cloud stocks or top software makers, the search leads to software-as-a-service, or SaaS. This is because SaaS stocks time and again have notched the best revenue growth among software companies. SaaS stocks not only have a predictable subscription revenue stream, these stocks are high-growth companies due to their alignment with cloud computing. They’re high margin companies as well because the costs linked with delivering a cloud-hosted software service is relatively less.

Widely speaking, SaaS stocks are winners in the near term with big margins and steady revenue streams. But, will the growth continue? Just 20% of organizations have shifted to the cloud, so there is plenty of room for cloud growth. And margins will surely improve further as the software industry grows stronger. Thus, it’s not too late to get optimistic on SaaS stocks, even though it isn’t a new concept. After all, it is a software distribution model, where a third-party provider hosts applications and makes them available to customers over the Internet. We have, thus, zeroed down on four solid SaaS stocks that are worth a look for long-term gains.

Twilio

Twilio Inc. TWLO provides a cloud communications platform that enables developers to build, scale, and operate communications within software applications in the United States and internationally. The company’s communication solutions have value and growth potential.

On the value front, it offers personalized customer experience. And on the growth side, it has less than 65,000 customers. But, there are more than 200 million customers across the globe, and nearly all of them will eventually require Twilio’s communication solutions.

Twilio currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s expected earnings growth rate for the current quarter is 125%, higher than the Internet - Software industry’s projected rise of 38.8%. The company has outperformed the broader industry so far this year (+41.6% vs +26.3%).

salesforce.com

salesforce.com, inc. CRM is built on enterprise SaaS cloud solutions. The company is known for offering cloud-based solutions that leverage analytics, data and AI to optimize all kinds of enterprise operations.

salesforce’s initiative to expand globally to capitalize overseas demand for cloud-based applications should lift the top line. Notably, partnership agreements with bigwigs like Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL will help the company expand its client base significantly and in turn boost revenues. Lest we forget, only a third of its revenues come from outside the United States, so there is plenty of scope for growth in the days to come.

salesforce currently has a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has moved 0.4% north in the past 60 days. The company’s expected earnings growth rate for the next year is 24%, more than the Computer - Software industry’s projected rise of 19.3%. The company has outperformed the broader industry over the past year (+33.4% vs +24.5%).

Adobe

Adobe Inc. ADBE operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. But, at its core, the company offers creative and visual-oriented cloud solutions to professionals and business houses.

Its Document Cloud segment is expected to improve on a rise in enterprise-level digital workload adoption, while focus on visual-first content is expected to bolster its Creative Cloud segment.

Adobe at present has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings has moved 0.5% up in the past 60 days. The company’s expected earnings growth rate for the current year is 15.5%, more than the Computer - Software industry’s projected growth of 7.6%. The company has outperformed the broader industry over the past two years (+102.5% vs +61.0%).

Axon Enterprise

Axon Enterprise, Inc. AAXN develops, manufactures, and sells conducted energy weapons worldwide. But, most importantly, the company provides cloud-hosted and next-gen solutions to improve law enforcement processes. Thus, Axon Enterprise is an attractive business since it sells to law enforcement agencies, which means demand is largely recession proof.

Axon Enterprise right now has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings has moved 1.1% north in the past 30 days. The company’s expected earnings growth rate for the next year is 47.3%, more than the Security and Safety Services industry’s projected rise of 22.2%. The company has outperformed the broader industry on a year-to-date basis (+20.0% vs +16.7%).

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Twilio Inc. (TWLO) : Free Stock Analysis Report
 
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
 
salesforce.com, inc. (CRM) : Free Stock Analysis Report
 
Axon Enterprise, Inc (AAXN) : Free Stock Analysis Report
 
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