Software is eating the world, and virtually no business is left untouched by it. 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 7.1%. This drawdown was disappointing since the S&P 500 stood firm.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. On that note, here is one software stock boasting a durable advantage and two we’re passing on.
Two SoftwareStocks to Sell:
Yext (YEXT)
Market Cap: $1.08 billion
Founded in 2006 by Howard Lerman, Yext (NYSE: YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.
Why Are We Wary of YEXT?
- ARR growth averaged a weak 8.8% over the last year, suggesting that competition is pulling some attention away from its software
- Projected sales growth of 4.4% for the next 12 months suggests sluggish demand
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
Yext’s stock price of $8.66 implies a valuation ratio of 2.5x forward price-to-sales. Check out our free in-depth research report to learn more about why YEXT doesn’t pass our bar.
ON24 (ONTF)
Market Cap: $236.2 million
Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE: ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.
Why Do We Pass on ONTF?
- Billings have dropped by 3.3% over the last year, suggesting it might have to lower prices to stimulate growth
- Sales are projected to tank by 6% over the next 12 months as its demand continues evaporating
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
ON24 is trading at $5.56 per share, or 1.7x forward price-to-sales. Read our free research report to see why you should think twice about including ONTF in your portfolio.
One Software Stock to Watch:
Varonis (VRNS)
Market Cap: $5.67 billion
Founded by a duo of former Israeli Defense Forces cyber warfare engineers, Varonis (NASDAQ: VRNS) offers software-as-service that helps customers protect data from cyber threats and gain visibility into how enterprise data is being used.
Why Are We Positive On VRNS?
- Ability to secure long-term commitments with customers is evident in its 18% ARR growth over the last year
- Software is difficult to replicate at scale and leads to a top-tier gross margin of 82.3%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
At $50.65 per share, Varonis trades at 8.8x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
