After several years of outperformance, the tech-heavy Nasdaq Composite entered a bear market in 2022. The high-growth tech stocks got battered last year due to the Fed’s aggressive interest rate hikes. SaaS (Software as a Service) stocks had a tough time navigating the challenging macroeconomic environment.
However, SaaS has become highly popular amongst business enterprises around the world. One of the major factors driving the demand for SaaS is the growth of the cloud. The cloud enables the scalability of SaaS platforms, enabling enterprises to handle higher workloads.
Even though inflation fell for the sixth consecutive month in December, the central bank remains committed to bringing inflation down to its 2% target, meaning more interest rate hikes this year. This is expected to keep the stock market under pressure this year.
Despite the uncertainty, the demand for SaaS solutions is expected to increase amid higher corporate spending on cloud computing, digital transformation, big data analytics, and artificial intelligence.
Functions like customer resource management (CRM) and enterprise resource planning (ERP), web hosting, and eCommerce are expected to drive the SaaS industry’s growth in the long term.
According to Statista, the SaaS market is expected to reach $195 billion in 2023, up from $146 billion in 2021. In addition, Gartner Inc. (IT) expects SaaS spending to rise 17% from the prior-year period to $195 billion in 2023.
The Descartes Systems Group Inc. (DSGX)
Headquartered in Waterloo, Canada, DSGX provides cloud-based logistics and supply chain management business process solutions that enhance the productivity, performance, and security of logistics-intensive businesses worldwide. Its Logistics Technology platform offers a range of modular, cloud-based, and interoperable web and wireless logistics management applications.
On January 6, DSGX acquired Supply Vision, a provider of shipment management solutions for North American Logistics Services Providers (LSPs). DSGX’s CEO, Edward J Ryan, said, “The Supply Vision acquisition complements our recent investments in QuestaWeb, Kontainers, and Portrix, as we look to broaden our footprint for LSPs.”
“We’re looking forward to working with the Supply Vision customers, partners, and team of domain experts to continue to help LSPs digitize their operations and manage the lifecycle of shipments in a secure, efficient and sustainable manner,” he added.
DSGX’s revenues for the fiscal third quarter ended October 31, 2022, increased 11.5% year-over-year to $121.47 million. Its net income increased 3.8% year-over-year to $26.47 million. Additionally, its adjusted EBITDA increased 13.1% year-over-year to $54.50 million, while its EPS came in at $0.31, representing a 3.3% rise from the prior-year quarter.
DSGX’s revenue for the quarter ending January 31, 2023, is expected to increase 9.9% year-over-year to $123.54 million. Its EPS for the quarter ending April 30, 2023, is expected to increase 12.2% year-over-year to $0.32.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 14.5% over the past six months to close the last trading session at $71.21.
DSGX’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Within the Software – SAAS industry, it is ranked #2 out of 26 stocks. It has an A grade for Stability and a B for Quality.
To see the additional ratings of DSGX for Growth, Value, Momentum, and Sentiment, click here.
Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale. The company’s platform includes a suite of interoperable data management products, API and application integration products, API management, data quality products, and master data management products.
On November 8, 2022, INFA announced that the company is expanding its SaaS version of multidomain Master Data Management (MDM) to Asia with Microsoft Azure. Manouj Tahiliani, GVP & GM for Master Data Management and 360 Applications at INFA, believes that the expanded reach in the region would help companies use cloud-native MDM to attain better business outcomes.
INFA’s total revenues for the third quarter (ended September 30, 2022) increased 2.8% year-over-year to $371.95 million. Its subscription revenue increased 10% from the prior-year period to $214 million. The company’s gross profit increased 1.3% year-over-year to $284.76 million. Also, its net cash provided by operating activities increased 40.4% year-over-year to $53.26 million.
Analysts expect INFA’s EPS for the quarter that ended December 31, 2022, to increase 8.5% year-over-year to $0.22. Its revenue for the quarter ending March 31, 2022, is expected to increase 6.4% year-over-year to $385.61 million.
The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has declined 2.1% over the past month to close the last trading session at $16.45.
INFA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It is ranked first in the Software – SAAS industry. In addition, it has a B grade for Value.
We have also given INFA grades for Growth, Momentum, Stability, Sentiment, and Quality. Get all INFA ratings here.
DSGX shares were trading at $71.68 per share on Tuesday afternoon, up $0.47 (+0.66%). Year-to-date, DSGX has gained 2.91%, versus a 4.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research.
With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More…
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