Software stocks were one of the strongest groups in 2020. In recent months, many pulled back and now seem ready to resume moving higher. Workday (WDAY) and Open Text (OTEX) are two of the top software stocks, which is the better buy?.
Between mid-February and mid-May, software stocks underperformed as money was flowing into cyclical, financial, and energy stocks. However, the software sector is catching a bid in recent weeks with many breaking out to new highs.
So, investors should look to the sector as many stocks have become attractive on a valuation basis and continue to post strong earnings reports.
WDAY, based in Pleasanton, California, has been in business for nearly 20 years. This company provides software used by those who work in human resources and financial management. WDAY’s cloud platform unites human resources and financial management in one cohesive system. WDAY's software provides businesses with helpful analytical insight along with information-backed support for decision-making. In addition to its platform, WDAY also provides application programming interfaces for web services along with packaged connectors and integrations.
WDAY revenue in '21 was more than $4.3 billion. The stock has a forward P/E ratio of 82.43 meaning there is a good argument to be made that it is overpriced. However, WDAY's beta is 1.28 so it is likely to hold steady even if the market becomes choppy. WDAY is currently trading about $50 below its 52-week high of $282.77.
WDAY is a mixed bag in terms of the POWR Ratings. The stock is a Hold as it has an overall C grade. However, WDAY has some solid POWR Rating components. The stock grades out as an A in the Growth component. WDAY also has a B grade in the Sentiment component of the POWR Ratings. WDAY has Cs in the Stability and Value components of the POWR Ratings. Click here to find out more about how WDAY fares in the rest of the POWR Ratings components.
Of the 125 publicly traded companies in the Software - Application space, WDAY is ranked 31st. Click here to learn more about the publicly traded companies in the Software - Application space.
WDAY is held in high regard by the top analysts. These investing gurus have established an average target price of $282.41 for WDAY. If WDAY hits this price point, it will have popped by slightly more than 25%. Notably, the stock's average price target has increased more than $96 across the past year. The highest target price for the stock is $320. The lowest WDAY target price is $250.
Open Text (OTEX)
OTEX develops applications categorized as e-Business and intranet/extranet. OTEX made one of the first engines for internet searches and indexing. In short, this is a web tech company based in Waterloo, Canada.
OTEX seems to be fairly priced at around $50 per share as it has a forward P/E ratio of 14.97. The stock has a low beta of 0.93 so it should hover around its current price even if the market undulates.
OTEX is a POWR Ratings monster with an A overall grade indicating the stock is a Strong Buy. OTEX has an A Stability component grade along with Bs in the Sentiment, Value, and Growth components. You can learn more about OTEX's POWR Rating component grades by clicking here.
Of the 125 publicly traded companies in the Software - Application space, OTEX is ranked second overall. Investors who would like to learn more about this industry can do so by clicking here.
Which is the Better Buy?
OTEX is the better buy. OTEX has a reasonable forward P/E ratio, an A overall POWR Rating grade, and a high industry rank. Investors should not hesitate to add OTEX to their portfolio at or near its current price point.
WDAY shares were unchanged in premarket trading Friday. Year-to-date, WDAY has declined -1.91%, versus a 12.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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