Software is rapidly reducing operating expenses for businesses. This secular theme makes SaaS companies attractive investment candidates but also comes with higher valuations that cause volatility. Unfortunately, the rich prices have haunted them over the past six months as the industry has shed 12.4%. This drawdown is a far cry from the S&P 500’s 13.3% ascent.
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. Taking that into account, here is one software stock boasting a durable advantage and two we’re passing on.
Two Software Stocks to Sell:
Paylocity (PCTY)
Market Cap: $5.74 billion
Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ: PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.
Why Is PCTY Not Exciting?
- Underwhelming ARR growth of 12.6% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 7.6% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
At $107.03 per share, Paylocity trades at 3x forward price-to-sales. Read our free research report to see why you should think twice about including PCTY in your portfolio.
Amplitude (AMPL)
Market Cap: $803.7 million
Born from the realization that companies were flying blind when it came to understanding user behavior in their digital products, Amplitude (NASDAQ: AMPL) provides a digital analytics platform that helps businesses understand how people use their digital products to improve user experiences and drive revenue growth.
Why Does AMPL Give Us Pause?
- Below-average net revenue retention rate of 103% suggests it has some trouble expanding within existing accounts
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Amplitude is trading at $6.09 per share, or 2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than AMPL.
One Software Stock to Buy:
GitLab (GTLB)
Market Cap: $4.00 billion
With its all-remote workforce pioneering a new approach to software development, GitLab (NASDAQ: GTLB) provides a single-application DevSecOps platform that helps development, operations, and security teams collaborate to build, secure, and deploy software faster.
Why Should You Buy GTLB?
- Customers view its software as mission-critical to their operations as its ARR has averaged 26.4% growth over the last year
- Platform has decent utility and becomes more valuable over time, as seen in its 120% net revenue retention rate
- Software is difficult to replicate at scale and leads to a best-in-class gross margin of 87.4%
GitLab’s stock price of $23.61 implies a valuation ratio of 3.4x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
