With the pandemic and the attendant economic crisis, you wouldn’t think of this as the time to buy in – but the NASDAQ has been rising, rising, rising since it bottomed at the end of March, and has been setting new record since the second week of June.
Unsurprisingly, the surge in the NASDAQ has carried software stocks along with it. Business fundamentals are shifting in response to the coronavirus scare, and with so many offices moving into remote work systems, software – especially networking and security platforms – are finding increased valuation. Smart investors with a nod toward the main chance are seeing the situation for what it is: a chance for software stocks to bloom.
With this in mind, Wedbush analyst Daniel Ives has released a series of reports on tech and software companies, pointing out buying opportunities in this upwardly mobile investment sector. Ives has a 5-star rating from TipRanks, and is ranked in the top 2% of all analysts covered.
We picked three of Ives’ best ideas in the software sector. Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for these software players.
Proofpoint, Inc. (PFPT)
Ives’ first pick is Proofpoint. This company has developed software to close a long-standing window in digital security: the flow of email into and out of a system. Proofpoint’s products are designed to secure business emails, along with offering archiving, inbound security, and data loss prevention solutions.
Initial reactions to the Q2 earnings prompted selling, but on closer inspection the strengths are clearer. To start with, the steep losses of Q1 have mostly reversed. EPS improved sequentially from a 51-cent loss to a 2-cent loss. Revenues gained 21% year-over-year, to $258 million, and billings, at $250 million, were up 8% yoy. Importantly, the company improved its full year guidance for revenue, net income, and free cash flow.
In a very upbeat report, Ives explained why he is assuming coverage on PFPT with an Outperform (i.e. Buy) rating: "PFPT is an emerging leader in email security and is pioneering the "people-centric" security category. PFPT has a large and growing $13.5B+ TAM driven by a well executed acquisition strategy which is drives effective cross-selling of its emerging product portfolio to both new and existing customers… we see ample runway for dependable growth and free cash flow generation over the next several years.”
Ives’ Outperform rating on PFPT comes with a $135 price target, indicating his confidence – and a 22% one-year upside potential. (To watch Ives’ track record, click here)
Overall, with 11 Buys and 1 Hold set recently, Proofpoint has a Strong Buy rating from the analyst consensus. Shares are selling for $110.74 and the $147.56 average price target suggests a strong 33% upside potential. (See PFPT stock analysis on TipRanks)
Progress Software Corporation (PRGS)
Progress Software lives in the ‘app’ landscape. The company’s products are development tools and services that allow business to create productive and relevant apps for their clients, and urgent need in the digital tech world.
The coronavirus crisis impacted Progress, but not as extensively as it did many other companies. The software maker showed a modest decline in 1H20 revenues, but for the past four quarters, the top line has held in a range between $100 and $117 million. EPS fell sequentially in the first half of the year, but remained strongly positive and is expected to post gains for Q3.
One measure of Progress’ fundamental soundness was its ability – at the height of the pandemic crisis – to complete the acquisition of Ipswitch, a competing software company. The deal, which cost $225 million in cash, brings additional capabilities to Progress in its software offerings for small- and mid-sized business enterprises.
Daniel Ives noted that acquisition, and what it means for Progress’ strategy going forward. Assuming coverage of the stock, he writes, “While PRGS no longer focuses on competing for new logos, it is pursing an accretive M&A strategy targeting companies with stable and profitable revenue streams with a goal of doubling revenues and cash flow in 3-5 years. Its successful acquisition of Ipswitch (2019), makes us bullish on management's ability to execute its strategy.”
Accordingly, Ives rates PRGS an Outperform (i.e. Buy) along with a $45 price target. This figure implies an 18% one-year upside from current levels.
Overall, Progress has a Moderate Buy analyst consensus rating. The stock has only 2 recent reviews, but both are positive. At $44, the average price target suggests the stock has room over the next year to grow 15.5% from the current price of $38.11. (See PRGS stock analysis on TipRanks)
Ives’ last pick is Alteryx, the California-based analytic software company that markets a line of data science and analysis products for a range of applications. The information age has turned data into a massive asset, and the ability to sort, analyze, collate, and distribute it is essential in business and science.
Business slowdowns in the first half of the year, attributable to the coronavirus crisis, have hit Alteryx hard. The company’s stock, which was rising for much of 1H20, dropped sharply after the Q2 earnings report. While revenues were above expectations, the company’s net loss was wide and 2020 full year guidance was reduced more than Wall Street had predicted.
With this in the background, Ives initiated coverage of AYX shares – and rated the stock an Outperform (i.e. Buy). Supporting his stance, Ives wrote, “AYX is well positioned to capture majority share in the nearly ~$50B analytics, business intelligence, and data preparation market with its code-friendly end-to-end data prep and analytics platform. While COVID-19 has negatively impacted expansion and new business activity in the near term, we expect AYX to exit the dark COVID-19 storm stronger as companies are now realizing the need for greater analytical rigor within their organizations.”
Ives put a $132 price target on the stock, suggesting a 9% upside from current levels.
Overall, Wall Street remains bullish on this data analysis software company – in fact, somewhat more so than Ives allows. The stock carries a Strong Buy rating from the analyst consensus, based on 8 Buys and 2 Holds, and the $164.60 average price target implies a 35% upside from the $121.68 current trading price. (See AYX stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
This article was originally posted on TipRanks.