While the software industry’s prospects look bright thanks to remote lifestyles and digital transformation, given current market volatility and fierce competition in the industry, we believe it is prudent to steer clear of Coupa Software (NASDAQ:COUP), Confluent Inc. (CFLT), and Ceridian HCM Holding (NYSE:CDAY). Put simply, these stocks look overvalued at their current price levels. Read on.Due to rapid digitization and remote lifestyles, the software industry's strong growth prospects have sparked fierce competition among existing and new industry entrants. Further, investors' optimism about the industry's continued growth has propelled many software stocks to high valuations that are not justified by their current or expected financials.
Following a seven-month winning streak, equity markets are down so far in September. Stock indexes ended flat on Wednesday, giving up Tuesday gains on better-than-expected inflation data. While multiple fiscal stimulus packages and the Fed’s dovish monetary policy stance have been driving the economic recovery, concerns over the resurgence of COVID-19 cases and rising Treasury yields could cause investors to drop overvalued tech stocks.
We think weak fundamentals and poor earnings growth potential could cause overvalued software stocks Coupa Software Incorporated (COUP), Confluent Inc. (CFLT), and Ceridian HCM Holding Inc . (CDAY) to suffer a downturn in the near term. So, they are best avoided now.