Even though the software market is expected to grow exponentially in the near-to-midterm thanks to an ongoing, global digital transformation, not all software companies will benefit from the industry tailwinds. SAP (SAP) and SS&C (SSNC) are two names that we think will gain in the near-term based on their strong financials. But it is wise, we believe, to avoid Bill.com (BILL) and Five9 (NASDAQ:FIVN) given the weakness in their financials and unfavorable analyst sentiment. Let’s look closer at all four companies.The prices of most software stocks have soared over the past year as the remote lifestyle requirements forced individuals and businesses to depend on software, particularly software that facilitates cloud-based services. Investors’ interest in the software stocks is evidenced by the SPDR S&P Software & Services ETF’s (XSW) 53.8% returns over the past year versus the tech-heavy Nasdaq's 44.8% returns.
The recent tech sell-off, which was triggered by concerns over rising inflation, has affected many software stocks, but the majority of them should recover in the near term given the growing demand for software by almost every industry. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR between 2021 - 2028.
Even though the overall software industry’s future looks promising, not all stocks are destined to benefit from the industry tailwinds. So, we think it could be wise to scoop up the shares of SAP SE (DE:SAPG) (SAP) and SS&C Technologies Holdings, Inc. (SSNC) based on their solid financials and continuing technical innovations. Conversely, we think it is better to avoid Bill.com Holdings, Inc. (NYSE:BILL) and Five9, Inc. (FIVN) because their near-term prospects look bleak.