2 Software Stocks on Our Watchlist and 1 Facing Challenges
Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with explosive earnings growth, and the upward trend shows no signs of stopping as the industry has posted a 37.4% gain over the past six months, beating the S&P 500 by 24.5 percentage points.
However, only a handful of companies will ultimately thrive over the long term as the low barriers to entry for software businesses lead to fierce competition. Taking that into account, here are two software stocks boasting durable advantages and one we’re steering clear of.
One Software Stock to Sell:
ZoomInfo (GTM)
Market Cap: $1.19 billion
Operating a platform it calls "RevOS" - short for Revenue Operating System - ZoomInfo (NASDAQ:GTM) provides sales, marketing, and recruiting teams with business intelligence and analytics to identify prospects and deliver targeted outreach.
Why Do We Pass on GTM?
- Offerings struggled to generate interest as its billings were flat over the last year
- Estimated sales decline of 6.2% for the next 12 months implies a challenging demand environment
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 49.7 percentage points
ZoomInfo’s stock price of $4.13 implies a valuation ratio of 1x forward price-to-sales. If you’re considering GTM for your portfolio, see our FREE research report to learn more.
Two Software Stocks to Watch:
Datadog (DDOG)
Market Cap: $82.87 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?
- Customers view its software as mission-critical to their operations as its ARR has averaged 31.3% growth over the last year
- Notable projected revenue growth of 24.5% for the next 12 months hints at market share gains
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
At $231.65 per share, Datadog trades at 17.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Braze (BRZE)
Market Cap: $2.82 billion
With its technology powering interactions with 6.2 billion monthly active users across the digital landscape, Braze (NASDAQ:BRZE) provides a platform that helps brands build and maintain direct relationships with their customers through personalized, cross-channel messaging and engagement.
Why Are We Positive on BRZE?
- Billings have averaged 30.2% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
Braze is trading at $25.01 per share, or 2.9x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.