Software is rapidly reducing operating expenses for businesses. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as the high prices exposed them to big drawdowns, and unfortunately, the industry has tumbled by 8% over the last six months. This drop was disappointing since the S&P 500 climbed 1.1%.
Investors should tread carefully as only some businesses are worthy of their valuations, and luckily for you, we started StockStory to help you find them. On that note, here is one software stock poised to generate sustainable market-beating returns and two best left ignored.
Two SoftwareStocks to Sell:
Palo Alto Networks (PANW)
Market Cap: $133.2 billion
Founded in 2005 by cybersecurity engineer Nir Zuk, Palo Alto Networks (NASDAQ: PANW) makes hardware and software cybersecurity products that protect companies from cyberattacks, breaches, and malware threats.
Why Does PANW Worry Us?
- 19.7% annual revenue growth over the last three years was slower than its software peers
- Offerings struggled to generate meaningful interest as its average billings growth of 3% over the last year did not impress
Palo Alto Networks’s stock price of $199.40 implies a valuation ratio of 14x forward price-to-sales. To fully understand why you should be careful with PANW, check out our full research report (it’s free).
Amplitude (AMPL)
Market Cap: $1.54 billion
Born out of a failed voice recognition startup by founder Spenser Skates, Amplitude (NASDAQ: AMPL) is data analytics software helping companies improve and optimize their digital products.
Why Does AMPL Fall Short?
- Products, pricing, or go-to-market strategy may need some adjustments as its 8.7% average billings growth over the last year was weak
- Persistent operating margin losses suggest the business manages its expenses poorly
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.2% for the last year
Amplitude is trading at $11.73 per share, or 4.5x forward price-to-sales. If you’re considering AMPL for your portfolio, see our FREE research report to learn more.
One Software Stock to Watch:
Bentley (BSY)
Market Cap: $16 billion
Founded by brothers Keith and Barry Bentley, Bentley Systems (NASDAQ: BSY) offers a software-as-a-service platform that addresses the lifecycle of infrastructure projects such as road networks, tunnel systems, and wastewater facilities.
Why Do We Like BSY?
- Customers tend to stick around and use its software more over time as its net revenue retention rate clocks in at 109%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- BSY is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
At $50.55 per share, Bentley trades at 11.1x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
