Apps & Software

Corporate Software Demand Stays Red Hot: Stifel's 4 Focus Stock Picks

Elastic

This off-the-radar stock has traded sideways since March and could be poised to explode higher. Elastic N.V. (NASDAQ: ESTC) delivers technology that enables users to search through structured and unstructured data for a range of consumer and enterprise applications. It primarily offers Elastic Stack, a set of software products that ingest and store data from various sources and formats, as well as perform search, analysis and visualization.

Its Elastic Stack product comprises Elasticsearch, a distributed, real-time search and analytics engine and data store for various types of data, including textual, numerical, geospatial, structured and unstructured. Kibana is a user interface, management and configuration interface for the Elastic Stack. Beats is a single-purpose data shipper for sending data from edge machines to Elasticsearch or Logstash, which is a data processing pipeline for ingesting data into Elasticsearch or other storage systems.

Elastic also provides software solutions on the Elastic Stack that address cases, including app search, site search, workplace search, logging, metrics, application performance management, business analytics and security analytics.

The company’s products are used by individual developers and organizations of a range of industries. Elastic has a strategic partnership with Confluent to enhance existing product integrations and jointly develop new capabilities that help users to combine the benefits of the Elastic Stack and Kafk.

Stifel is very positive on this company’s potential:

We remain bullish on shares of Elastic, given the increasing scale of Elastic’s SaaS business, our belief this unit sustains well above corporate revenue growth rates, and management’s recent decision to change its open-source licensing model to SSPL and the Elastic License from Apache 2.0. We continue to believe this licensing change, along with management’s increasing focus on its consumption-based SaaS solution (28.9% of fiscal fourth quarter 2021 revenue), the ongoing expansion of Elastic’s product portfolio beyond Search into Observability and Security, as well as improving operational efficiency and profitability, should generate continued multiple expansion in coming quarters.

The Stifel price target is $180, and the lower consensus target is $172.06. Monday’s final trade was at $137.16 a share.

Unity Software

Shares of this top company have come in nicely since the beginning of the year and are offering perhaps the best entry point for all the focus picks. Unity Software Inc. (NYSE: U) operates a real-time 3D development platform that provides software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles and augmented and virtual reality devices.

The company offers its solutions directly through its online store and field sales operations in North America, Denmark, Finland, the United Kingdom, Germany, Japan, China, Singapore and South Korea, as well as indirectly through independent distributors and resellers worldwide.