Even though the majority of the software stocks generated massive returns last year on the back of an increased remote working trend amid the COVID-19 pandemic, investors have been rotating away from expensive tech stocks this year on concerns over rising inflation and to benefit from the strong upside potential of cyclical stocks amid the economic recovery. However, tech stocks’ price retreat has made the valuations of fundamentally strong software stocks reasonable now.
Because the hybrid working model is here to stay, the software industry should witness solid growth this year and beyond. It is also expected to benefit from the ongoing, global digital transformation and increasing automation of processes across several industries, including retail, manufacturing and healthcare. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR over the next seven years.
Software companies Magic Software Enterprises Ltd. (MGIC), Brightcove Inc. (BCOV), and Immersion Corporation (IMMR) have immense growth potential, but their stocks are currently trading below $20 per share. So, we think it could be wise to bet on them now.
Click here to check out our Software Industry Report for 2021
Magic Software Enterprises Ltd. (MGIC)
Headquartered in Or Yehuda, Israel, MGIC provides application development, business process integration platforms, vertical software solutions and related professional services. The company’s product portfolio includes its Magic xpa Application Platform, AppBuilder Application Platform and Magic xpi Integration Platform.
MGIC’s revenue increased 25.9% year-over-year to $107.30 million for the first quarter, ended March 31, 2021. Its non-GAAP net income for the quarter came in at $10.30 million, up 9.5% from the prior-year quarter. And its non-GAAP EPS was $0.21, which represents a 10.5% increase year-over-year.
Analysts expect MGIC’s EPS to increase 23.5% year-over-year to $0.21 for the current quarter, ending June 30. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 22.4% year-over-year to $108.97 million for the quarter ending September 30, 2021.
MGIC introduced FactoryEye to North American manufacturers in April. It is powered by a dynamic IIoT (Industrial Internet of Things) platform. This affordable solution is expected to help mid-sized manufacturers transform data into actionable intelligence and provide visibility from the shop floor to the top floor in real time. The stock has gained 34.4% over the past year to close yesterday’s trading session at $15.52.
It’s no surprise that MGIC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Stability, and a B grade for Sentiment, Momentum, Value and Growth. Click here to see MGIC’s rating for Quality also.
MGIC is ranked #5 of 125 stocks in the Software-Application industry.
Brightcove Inc. (BCOV)
BCOV is a provider of cloud-based services for the video industry. Its flagship products include Video Cloud, which is an online video platform that enables its customers to publish and distribute video to internet-connected devices. BCOV serves media, sports, and entertainment companies, broadcasters, and publishers, among others.
For the first quarter, ended March 31, 2021, BCOV’s revenues were $54.82 million, which represents a 17.5% year-over-year rise. The company’s non-GAAP net income came in at $6.22 million, up 321.9% year-over year. And its non-GAAP EPS increased 275% year-over-year to $0.15.
For its fiscal year 2021, analysts expect BCOV’s EPS to increase 33.3% year-over-year to $0.48. It surpassed consensus EPS estimates in each of the trailing four quarters. The company’s annual revenue is expected to increase 10.6% year-over-year to $237.72 million in 2022.
Last month, BCOV partnered with Chinese e-commerce giant Alibaba Group Holding Limited (BABA) to create its Brightcove China Delivery via Alibaba Cloud solution, making BCOV the first video provider in the country to enable on-demand video streaming. BCOV’s Chief Product Officer Namita Dhallan said, “We’re pleased to finally enable customers to stream video within China. No longer is there a separate, complex, and disappointing process for attempting video-driven business in China.” The stock has rallied 70.2% over the past year to close yesterday’s trading session at $13.77.
BCOV’s POWR Ratings reflects this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. It has an A grade for Value, and a B grade for Growth, Quality and Sentiment. In addition to these grades, one can see BCOV’s ratings for Stability and Momentum here.
BCOV is ranked #6 in the Software-Application industry.
Immersion Corporation (IMMR)
IMMR creates, designs, develops and licenses haptic technologies that allow people to use their sense of touch when operating digital devices. Its products and services are used across several markets, including the wearables, consumer electronics, console and PC gaming, automotive, and medical markets.
The company’s total revenues came in at $7.16 million for the first quarter, ended March 31, 2021, which represents a 14.4% year-over-year rise. Its non-GAAP net income for the quarter was $2.80 million, compared to a $2.60 million loss during the same period last year. Its non-GAAP EPS was $0.10 compared to an $0.08 loss per share in the prior-year quarter.
Analysts expect IMMR’s EPS to increase 266.7% year-over-year to $0.11 for the current quarter. ending June 30, 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Its revenue for the quarter ending September 30, 2021, is expected to be $10.75 million, up 44.3% year-over-year.
On May 20, IMMR announced a collaborative effort to provide automotive UI designers with the ability to use Kanzi Studio with IMMR’s APIs to design haptics. This is expected to help car manufacturers test and experience haptics on a haptic-enabled HMI unit as they create their Kanzi-powered UIs for automotive touchscreens and center stack displays. The stock has gained 31.5% over the past year to close yesterday’s trading session at $8.98.
IMMR’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Quality and a B grade for Value and Growth. Click here to see the additional POWR Ratings for IMMR (Stability, Sentiment and Momentum).
IMMR is ranked #18 in the Software-Application industry.
Click here to check out our Software Industry Report for 2021
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MGIC shares were trading at $15.66 per share on Friday morning, up $0.14 (+0.90%). Year-to-date, MGIC has gained 1.34%, versus a 13.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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