Apps & Software

Top Analyst Says Software Stocks Are Expensive Now: 5 High-Value Conviction Buys

The Coupa Software platform offers consumerized financial applications. Its spend management suite includes procurement, invoicing, expenses, sourcing, inventory, contract lifecycle management, budgeting, analytics, open business network, supplier information management and storefront.

The platform offers features such as procure-to-pay solution; online invoice management, and inventory management and tracking software system. Its solutions for business needs include financial compliance and mobile productivity. The company’s solutions for enterprise resource planning include Oracle and NetSuite. Coupa offers solutions for industries, including financial, health care, oil and gas, retail, technology, and food and beverage.

Goldman Sachs is very positive on Coupa and noted this when it added the stock to the Conviction List:

Along with the rest of growth software, Coupa has traded off 23% from its high on 2/18 (versus S&P down 2% in that time frame). But we see an attractive entry point at current levels – 26x calendar year 2022 sales vs. high growth peers at 26x, despite our expectations for above-peer growth – as we believe fundamentals for Coupa are improving after a relatively brief period of disruption from the pandemic. Coupa is very much levered to the improving pace of digital transformations, specifically those taking place in the ERP suite, a category that our checks suggest is increasingly being prioritized as companies move through their wish list of system migrations. Coupa has a total addressable market of over $50 billion before taking into account the payments opportunity. This $50 billion runway includes the potential spend for its core offerings of procurement, expense management, invoice management, and community intelligence.

Late last year, Goldman Sachs raised its price target from $328 to a stunning $413. The consensus target is $342.65. Coupa Software stock popped almost 7% on Wednesday to close at $254.48.

Microsoft

This is a more conservative way for investors to participate in the massive cloud growth and utilization. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses, and supports a wide range of software products. The company has transformed its business model from a component-driven model (personal computer, server) to one driven by the need for cloud capacity.

Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.

Some analysts maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in 2020 earnings reports, and it will remain a growing part of the software giant’s earnings profile.

Goldman Sachs noted this:

With a strong presence across all layers of the cloud stack, including applications, platforms, and infrastructure, Microsoft is well positioned to capitalize on a number of long-term secular trends, including public cloud and SaaS adoption, digital transformation, Artificial Intelligence/Machine learning, Business intelligence/analytics, and Development Ops (amongst others). We see a pathway for sustained double-digit topline growth alongside continued margin expansion, particularly as the Commercial Cloud business continues to grow as a percentage of the overall mix.

Holders of Microsoft stock receive a 1% dividend. Goldman Sachs has a $315 price target, and the consensus target is $272.71. The shares closed at $235.77 on Wednesday.