Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on returns lately as the industry has pulled back by 13% over the past six months. This drop is a stark contrast from the S&P 500’s 6.3% gain.
While some can support their premium valuations with superior earnings growth, the odds aren’t great for the businesses we’re analyzing today. With that said, here are three software stocks we’re swiping left on.
Sprout Social (SPT)
Market Cap: $428 million
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ: SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Does SPT Worry Us?
- Offerings struggled to generate meaningful interest as its average billings growth of 9.6% over the last year did not impress
- Estimated sales growth of 6.9% for the next 12 months implies demand will slow from its two-year trend
- Persistent operating margin losses suggest the business manages its expenses poorly
At $6.70 per share, Sprout Social trades at 0.8x forward price-to-sales. Read our free research report to see why you should think twice about including SPT in your portfolio.
Paycom (PAYC)
Market Cap: $6.17 billion
Pioneering the concept of employees doing their own payroll with its "Beti" technology, Paycom (NYSE: PAYC) provides cloud-based human capital management software that helps businesses manage the entire employment lifecycle from recruitment to retirement.
Why Is PAYC Not Exciting?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 9% underwhelmed
- Estimated sales growth of 6.7% for the next 12 months implies demand will slow from its two-year trend
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
Paycom is trading at $126.33 per share, or 2.8x forward price-to-sales. If you’re considering PAYC for your portfolio, see our FREE research report to learn more.
Dolby Laboratories (DLB)
Market Cap: $4.99 billion
Known for its iconic "D" logo that appears before countless movies and TV shows, Dolby Laboratories (NYSE: DLB) designs and licenses audio and video technologies that enhance entertainment experiences in movies, TV shows, music, and other media.
Why Are We Out on DLB?
- Sales trends were unexciting over the last five years as its 2.1% annual growth was well below the typical software company
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 2 percentage points
Dolby Laboratories’s stock price of $52.66 implies a valuation ratio of 3.5x forward price-to-sales. To fully understand why you should be careful with DLB, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
