From commerce to culture, software is digitizing every aspect of our lives. 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 9.2%. This performance is a noticeable divergence from the S&P 500’s 11.6% return.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. Taking that into account, here is one resilient software stock at the top of our wish list and two that may face trouble.
Two Software Stocks to Sell:
Autodesk (ADSK)
Market Cap: $51.41 billion
Starting with AutoCAD in the 1980s and evolving into a comprehensive design ecosystem, Autodesk (NASDAQ: ADSK) provides software solutions for architecture, engineering, construction, manufacturing, and entertainment industries to design, simulate, and visualize projects.
Why Are We Hesitant About ADSK?
- Annual revenue growth of 13.7% over the last five years was below our standards for the software sector
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Operating margin failed to increase over the last year, indicating the company couldn’t optimize its expenses
Autodesk’s stock price of $243.60 implies a valuation ratio of 6.2x forward price-to-sales. Check out our free in-depth research report to learn more about why ADSK doesn’t pass our bar.
Wix (WIX)
Market Cap: $2.33 billion
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Does WIX Worry Us?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 13.8% underwhelmed
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 12.2 percentage points
- Projected 10.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Wix is trading at $55.90 per share, or 1.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than WIX.
One Software Stock to Buy:
Datadog (DDOG)
Market Cap: $74.33 billion
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ: DDOG) provides a software platform that helps organizations monitor and secure their cloud applications, infrastructure, and services.
Why Will DDOG Beat the Market?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
At $208.71 per share, Datadog trades at 16.7x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
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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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
