The software industry is booming with ongoing digital transformation and increasing remote activities. However, shares of Upstart (NASDAQ:UPST), Asana (ASAN), and SecureWorks (NASDAQ:SCWX) have reached valuations that are far ahead of their intrinsic values. Therefore, Wall Street analysts expect these stocks to retreat by more than 20% in price in the near term. Read on.Last year, the software industry achieved solid growth due to a COVID-19 pandemic-led increased dependency on remote platforms. The trend has continued this year with an increasing adoption of advanced software in almost every industry as part of widespread digital transformation efforts. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR between 2021 - 2028.
Investors’ interest in software stocks is evidenced by the SPDR S&P Software & Services ETF’s (XSW) 2.8% returns over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 0.8% loss. However, this has led to sky-high valuations for some software stocks that are not in sync with their growth prospects. In addition, the industry faces increasing cyber-security-related threats.
The valuations of Upstart Holdings, Inc. (UPST), Asana, Inc. (ASAN), and SecureWorks Corp. (SCWX) at their current price levels are not in sync with their fundamentals and growth prospects. Therefore, Wall Street analysts expect these stocks to decline in price in the near term.