The COVID-19 pandemic has played a huge role in the software industry's growth, ushering in an era of widespread remote and hybrid working. Furthermore, the development of advanced technologies, such as blockchain and artificial intelligence, and increasing investments by businesses to make their operations efficient, should also help the sector thrive. According to research by Accelerated Strategies Group, 63.3% of business respondents said that they have accelerated digital transformation as a priority for their companies.
In addition, the growth of metaverse, rapid business automation, and rising demand for data analytics are expected to bolster the demand for software solutions. Indeed, the global business software and services market is expected to expand at an 11.7% CAGR from 2022 to 2030.
Given this backdrop, we think it could be wise to invest in fundamentally sound software stocks, Sapiens International Corporation N.V. (SPNS) and Informatica Inc. (INFA), which are down more than 25% in price year-to-date.
Click here to check out our Software Industry Report for 2022
Sapiens International Corporation N.V. (SPNS)
SPNS delivers software solutions for the insurance and financial services industries internationally. The Holon, Israel, company offers Sapiens CoreSuite and Sapiens IDITSuite for personal, commercial, and specialty lines; and Sapiens CoreSuite, Sapiens UnderwritingPro, Sapiens ApplicationPro, Sapiens IllustrationPro, and Sapiens ConsolidationMaster for life, pension, and annuities.
Recently, SPNS announced a partnership with Mindtree, a global technology consulting and services company, to help assist digital transformation in the insurance industry. The combination of SPNS’ industry-leading, cloud-native, core suite of insurance applications and Mindtree's deep insurance domain knowledge and extensive delivery capabilities should accelerate the scale, speed to market, and customer satisfaction as insurance companies embrace digitalization.
Also, in March, SPNS announced an agreement with Albany Group, which has expertise in risk and intelligence software for automated compliance and risk management, and a regulatory platform that provides a comprehensive third-party supply chain management solution. The partnership eases complex compliance processes carried out across third-party platforms such as Lloyd's to meet stringent industry and regulatory requirements with efficacy at reduced costs and minimal risk.
During the fourth quarter, ending Dec. 31, 2021, SPNS' non-GAAP revenue increased 16.4% year-over-year to $119.9 million. Its non-GAAP operating income grew 15.7% from its year-ago value to $21.6 million, while its net income improved 22.3% from its prior-year quarter to $17.7 million. The company's non-GAAP EPS rose 18.5% year-over-year to $0.32.
The $1.35 consensus EPS estimate for its fiscal 2023 represents a 14.1% improvement year-over-year. Analysts expect its revenue to increase 7% year-over-year to $117.21 million for the first quarter, ending March 31, 2022. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock declined 32% in price year-to-date.
SPNS' POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Growth, Sentiment, and Stability. Within the Software – Business industry, it is ranked #3 of 60 stocks. To see additional POWR Ratings for Momentum, Value, and Quality for SPNS, click here.
Informatica Inc. (INFA)
Redwood City, Calif.-based INFA delivers an artificial intelligence-powered platform that connects, manages, and combines data across multi-cloud, hybrid systems at an enterprise scale in the United States. The company's platform includes a suite of interoperable data management products, including data integration products to ingest, transform, and unify data.
Recently, INFA announced an expanded partnership with Snowflake, a Data Cloud Company. The companies aim to intensify integration between the Data Cloud and Informatica's Intelligent Data Management Cloud (IDMC) to help augment customers' move to the cloud with extended data management and data governance capabilities.
Also, last month INFA announced the Intelligent Data Management Cloud (IDMC) for Retail with new cloud-first, cloud-native capabilities developed to aid the retail industry in driving innovation and business value by addressing specific challenges related to data fragmentation, data complexity, and lack of connected experiences in a multi-cloud, hybrid environment.
INFA's revenue increased 25.5% year-over-year to $197.75 million during the first quarter, ending March 31, 2022. The non-GAAP income from operations grew slightly from its year-ago value to $83.39 million, while its non-GAAP net income increased 14.8% from its prior-year quarter to $57.90 million. The company's non-GAAP EPS amounted to $0.20.
Analysts expect INFA's revenue to increase 11.4% year-over-year to $403.13 million for the third quarter, ending Sept. 30, 2022. The $0.23 consensus EPS estimate represents a 17.4% improvement year-over-year for the fourth quarter, ending Dec. 31, 2022. The company's shares have plunged 45.4% in price year-to-date.
INFA's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. INFA has also rated a B grade for Growth and Sentiment. Within the Software – SAAS industry, it is ranked #6 of 25 stocks.
In total, we rate INFA on eight distinct levels. To see INFA's additional POWR Ratings for Value, Momentum, Quality, and Stability, click here.
Click here to check out our Software Industry Report for 2022
SPNS shares were trading at $23.82 per share on Thursday afternoon, up $0.38 (+1.62%). Year-to-date, SPNS has declined -30.86%, versus a -9.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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