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The SaaS business model is becoming the norm for the software industry. While many SaaS stocks saw huge gains in 2020, we need to be more selective this year. That's why David Cohne recommends Salesforce.com (CRM), Microsoft (MSFT), and Adobe (ADBE) as top SaaS stocks for May.
Twenty years ago, very few companies were using a software-as-a-service (SaaS) business model. But now that has changed as it is widespread in the software industry. SaaS is a type of licensing model in which access to software is provided on a subscription basis. The software is located on an external server. Customers access it through a web browser rather than their computer's hard drives.
The SaaS business model has largely become synonymous with the rise of the cloud as software is accessed through the cloud. Software hosted in the cloud not only provides companies with a time-saving option to update their software, it is also more cost-effective for customers. In the past, consumers had to buy multiple software products at the same time, which could be very costly. The SaaS model, on the other hand, makes it much cheaper, especially at the front end.
For a SaaS company, the subscription model provides a steady stream of revenue rather than convincing its customers to upgrade to new products. With so many SaaS companies, it can be difficult for investors to narrow down their choices. Because of this, I've narrowed my list to SaaS stocks with solid growth catalysts and buy reviews on our POWR ratings service. That's why I raise Salesforce.com Inc (CRM), Microsoft Corp. (MSFT) and Adobe Inc. (ADBE) below.
Salesforce.com Inc (CRM)
CRM is currently the world's largest provider of customer relationship management with a market share of 30% in the field of sales automation. Approximately 90% of Fortune 100 companies use at least one CRM software. The company is well positioned to continue to capture a larger portion of the $ 130 billion market. CRM is a leader in each of the markets in which it operates. Customer loyalty has steadily improved over time.
CRM was a direct beneficiary of the move to the cloud. It benefits from increased demand as customers continue to work digitally. The rapid acceptance of its cloud-based offerings is driving demand for its products. CRM has expanded its offering to include additional functions, including customer service, marketing automation, e-commerce, analytics and artificial intelligence. And each of them is tightly integrated. In addition, the company has emphasized increasing its margin over the past few quarters.
The share has an overall rating of B, which is reflected in a buy in our share POWR ratings System. The company has a growth rate of B, which is not surprising given that sales in the current quarter are expected to increase by 21.5% year over year. In addition, a profit increase of 25.7% is forecast for the same quarter. CRM also has a Quality Grade of B due to its strong balance sheet. The stock has a current quota of 1.2, which indicates that it has more than enough liquidity to run off short-term debt.
We also offer CRM grades based on value, momentum, stability and sentiment. You can find this one Here. CRM ranks 12th in the software business sector. You can find more top-rated stocks in the industry at Click here.
Click here to read our Software Industry Report for 2021
Microsoft Corp. (MSFT)
MSFT doesn't need to be introduced as one of the largest technology providers in the world. The company dominates the PC software market with an 80% market share in operating systems. When you think of buying software fifteen years ago, the first thing that comes to mind is the CD-ROMs for the Microsoft Office suite. While Office is still dominating, it now runs on a SaaS model.
The company has an almost monopoly on productivity software and operating systems. The move to subscription services provides the company with reliable revenue and improved margins. The PC market isn't the only place MSFT shines, however. The Azure cloud offering is the company's largest and fastest growing company and a leading provider in this area. The Microsoft Teams offer is also based on a subscription.
MSFT has an overall grade of B or a buy recommendation in our POWR rating service. It also has an A sentiment rating, which means Wall Street analysts love the stock. According to the StockNews Price target function31 analysts have a strong buy or buy rating for the stock. MSFT also has a degree of stability of B, which means that the result and the price development were stable.
We also offer the following qualities for MSFT: Growth, Value, Dynamism, and Quality. You can find this one Here. MSFT ranks 18th in the software application industry. You can find other top stocks in this industry from Click here.
Adobe Inc. (ADBE)
ADBE is one of the largest software companies in the world. Most of its revenue comes from license fees from customers. The company dominates the content creation market. Originally known for its PDF reader and Photoshop, it is now a diversified software company serving creative professionals, designers, developers and businesses with electronic document and graphic content creation applications.
Due to the remote working environment, the company has noticed increased customer loyalty on its website. This is unlikely to change once the offerings are in the cloud. ADBE remains the de facto standard for content creation software with its Document Cloud offering. In addition, as smartphone purchases increase, more and more people will use the PDF file format. The company's addition of marketing services in its digital experience segment should drive growth over the long term.
ADBE is rated B in our POWR rating service with a purchase. The company has a B sentiment rating because it is very popular with Wall Street analysts. 22 analysts rate the company as a Buy or Strong Buy. In addition, the share is trading 10% below its average price target for analysts. Due to a strong balance sheet, the company also has a quality grade of A.
As of the last quarter under review, ADBE had $ 5 billion in cash compared to no short-term debt. The stock also has a net income margin of 40.7%. Make sure to do the following to gain access to the rest of the ADBE classes (Growth, Value, Momentum, and Stability) Click here. ADBE ranks 22nd in the software application industry.
CRM approvals. CRM has risen 5.25% since the beginning of the year, while the benchmark index S&P 500 rose 12.04% over the same period.
About the author: David Cohne
David Cohne has 20 years of investment analyst and writer experience. Prior to joining StockNews, David spent 11 years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and markets. He takes a basic quantitative approach to valuing stocks for readers.
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