From commerce to culture, software is digitizing every aspect of our lives. 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 9.4% over the last six months. This drawdown was worse than the S&P 500’s 5.5% decline.
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 software stock boasting a durable advantage and two that may face trouble.
Two Software Stocks to Sell:
Dropbox (DBX)
Market Cap: $8.29 billion
Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ: DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.
Why Does DBX Worry Us?
- Customers had second thoughts about committing to its platform over the last year as its billings plateaued
- Estimated sales decline of 2.7% for the next 12 months implies a challenging demand environment
- Efficiency has decreased over the last year as its operating margin fell by 3 percentage points
At $29.24 per share, Dropbox trades at 3.5x forward price-to-sales. To fully understand why you should be careful with DBX, check out our full research report (it’s free).
Pegasystems (PEGA)
Market Cap: $7.97 billion
Founded by Alan Trefler in 1983, Pegasystems (NASDAQ: PEGA) offers a software-as-a-service platform to automate and optimize workflows in customer service and engagement.
Why Does PEGA Fall Short?
- Muted 8.8% annual revenue growth over the last three years shows its demand lagged behind its software peers
- Sales are projected to tank by 2.2% over the next 12 months as demand evaporates
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
Pegasystems is trading at $92 per share, or 5.5x forward price-to-sales. If you’re considering PEGA for your portfolio, see our FREE research report to learn more.
One Software Stock to Buy:
Samsara (IOT)
Market Cap: $24.65 billion
One of the few public companies where Marc Andreessen is a Board member, Samsara (NYSE: IOT) provides software and hardware to track industrial equipment, assets, and fleets.
Why Are We Bullish on IOT?
- Customers view its software as mission-critical to their operations as its ARR has averaged 35% growth over the last year
- Expected revenue growth of 22.7% for the next year suggests its market share will rise
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Samsara’s stock price of $42.30 implies a valuation ratio of 15.9x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
