After witnessing some of the hottest software stocks skyrocket to dizzying valuations over the past few years, many investors wonder if opportunities remain in this high-flying sector. With sales multiples stretching well into the double digits for companies like Snowflake (NYSE:SNOW) and Datadog (NASDAQ:DDOG), I believe the easy money has already been made. Many of these momentum darlings now seem primed for a pullback after their parabolic rises.
However, don’t be fooled into thinking there isn’t still untapped potential in lesser-known software names. Targeting more niche players with stable business models (but lacking the hype) can still provide significant upside. With the breakneck speed of technological innovation, software has become the driving force behind nearly every industry. Software stocks have handsomely rewarded investors over the past decade and will continue to do so if you rotate into the right ones. Here are seven software stocks to look into right now.
ACV Auctions (ACVA)
The used vehicle market has taken a hit, as purchasing power deteriorated after the post-pandemic demand boom. With inflation squeezing disposable incomes, middle and lower-middle-class buyers curtailed spending on big-ticket discretionary items like used cars. Consequently, many used car retailers saw business drop-offs. However, I believe the tide is turning, and ACV Auctions (NASDAQ:ACVA) presents an intriguing opportunity as a standout in this niche sector.
ACV Auctions brings transparency and efficiency to dealers. Dealers can buy and sell inventory through the company’s live auctions, while leveraging vehicle inspections, transport, financing, and inventory management services. Despite the sector downturn, ACV Auctions has maintained strong growth momentum. Its top line expanded even amidst the industry chaos. And while its share price remains down 61% from its peak, ACV has held up better than other used vehicle retailers.
With profitability potentially on tap for 2024 and explosive earnings growth expected afterward, I believe the market under-appreciates ACV Auctions’ prospects. Analyst’s 2025 earnings per share estimates put its forward price-earnings ratio at 27-times, which is quite reasonable for a high-growth SaaS business. Consensus estimates see earnings per share rising 9-fold from 2025 to 2031 alongside 20% annual revenue growth. Given the immense TAM in used vehicle auctions and ACV’s leadership, I see substantial upside even from today’s depressed valuations. This makes ACV a compelling, under-the-radar software stock to buy before what I expect to be a vertical ascent.
Opera (OPRA)
Beyond its classic Opera (NASDAQ:OPRA) browser and Opera Mini, Opera has refreshed its browser lineup to appeal to youth. Opera GX is tailored to gamers and integrates well with streaming platforms like Twitch and Discord. Opera canvassed modern internet users by baking in features like AI capabilities, a crypto wallet, and a VPN. The moves have paid off – many Gen Zers have switched to this browser from Chrome.
Despite industry turmoil, Opera delivered 11 straight quarters of 20%+ revenue growth. Its latest results blew away expectations. The company brought in $103 million in revenue, representing 20% year-over-year growth, while the company’s adjusted EBITDA margin hit 23%. Additionally, Opera’s 2024 revenue growth is estimated at 15%, with earnings per share expected to hit $1. At just 12-times 2024 earnings, I believe Opera looks extremely undervalued, particularly for a software company putting up this kind of growth.
As Opera continues enhancing its innovative browser and expanding its user base, I see a tangible upside even after its stellar 63% returns this year. The market may be snoozing on Opera now, but with its attractive growth-value proposition, this niche software stock appears positioned to soar considerably higher in 2024.
PDD Holdings (PDD)
PDD Holdings (NASDAQ:PDD) owns two e-commerce platforms – Pinduoduo and Temu. As China’s second most popular platform behind Alibaba (NYSE:BABA) in terms of monthly active users, Pinduoduo made tremendous inroads in Chinese e-commerce. Its Groupon-style model, built around social interactions and aggressive discounts, has proved enormously successful.
Notably, Temu represents PDD’s effort to translate this formula to international markets, focusing on rock-bottom pricing. Temu becoming the top-ranked iPhone app in the U.S. highlights that even wealthy populations crave its unbeatable everyday value.
Despite some post-pandemic wobbles, PDD stock boasts striking momentum – up 320% off its March 2022 bottom and 60% over the past year. Revenue rocketed 94% year-over-year in Q3, as the company blew away estimates by 28%. The company’s 2023 earnings per share figure is set to double by 2026. And even at 2023 projections, shares trade at a digestible 24-times earnings, quite inexpensive for a Chinese internet giant growing this briskly.
Once Chinese sentiment rebounds, I expect this niche e-commerce juggernaut to regain its premium multiple as Wall Street remembers the immense long-term potential ahead. PDD looks poised to continue handsomely rewarding investors over the next decade.
Mitek Systems (MITK)
With digital transformation accelerating across sectors, demand for user identity verification and transaction security solutions continues to expand rapidly. Yet many identity specialists trade at demanding valuations after strong runs. Mitek Systems (NASDAQ:MITK) presents an overlooked opportunity trading at just 11-times forward earnings, despite leadership in critical growth areas spanning fintech, deposits, and biometrics.
Mitek built the first mobile check deposit technology, which is now used by millions. This technological breakthrough has provided a deep competitive moat, which remains to this day.
The company’s portfolio of solutions leverage proprietary AI and machine learning to enable secure user onboarding, identity corroboration, and transaction protection. High customer loyalty and a sticky revenue base provide ballast, while a recent management shakeup aims to unlock shareholder value.
While pandemic pressures temporarily depressed fintech activity, Mitek appears poised to ride renewed momentum. Consensus forecasts call for steady, low double-digit earnings and revenue growth in the coming years. But with shares lagging peers and catalysts emerging, I believe 2024 could prove a breakout year for Mitek. This overlooked identity verification play has quietly built an enviable competitive position and trades at a reasonable valuation today, given its growth prospects over the next decade.
Zeta Global Holdings (ZETA)
Zeta’s (NYSE:ZETA) integrated data-driven marketing platform leverages AI to equips brands to analyze consumer behavior, build higher-converting digital campaigns, and make ad spending more impactful.
Though advertising demand volatility poses risks in the interim, Zeta’s offerings could prove essential for businesses navigating fluid consumer patterns. The company’s earnings per share are projected to nearly double from 32 cents in 2023 to 58 cents in 2025, alongside 17%-20% annual revenue growth. With 2022 losses of $279 million on $591 million in sales, profitability improvements are clearly a priority.
Importantly, analysts expect revenue to reach $1 billion in 2025, accompanied by around $100 million in earnings. Trading at 32-times forward earnings and three times sales, Zeta looks underpriced to me, given its growth potential. As the company continues to execute, ZETA stock may hold substantial upside from today’s levels.
UiPath (PATH)
While generative AI has grabbed headlines lately, robotic process automation leader UiPath (NYSE:PATH) continues making inroads in key areas of the economy. Essentially, UiPath empowers companies to automate repetitive workflows. UiPath does this by leveraging proprietary AI to help organizations boost efficiency, workplace productivity, cost savings, and customer satisfaction. Despite the vital role automation plays in enhancing enterprise agility, PATH stock currently trades nearly 68% off its 2021 highs.
However, UiPath is quietly building impressive momentum on strong execution and technological differentiation. Integrating generative AI to ease automation development paired with over 10,000 enterprise customers and the potential for nearly $300 million in 2024 non-GAAP operating profits make UiPath an appealing turnaround candidate. With analysts potentially underestimating UiPath’s profit potential based on its historical performance, I believe the stock looks attractively priced around 8-times 2024 projected earnings.
The automation wave remains in its early innings, and UiPath has cultivated defendable leadership after years of innovation. If execution remains consistent, UiPath appears positioned to ride renewed momentum on large, underpenetrated opportunities across SMBs and enterprises. Currently, PATH stock offers investors intriguing risk-reward upside. It’s a stock I think is worth buying, for those who can stomach some volatility.
Five9 (FIVN)
Five9’s (NASDAQ:FIVN) cloud contact center platform integrates voice, messaging, AI, analytics, and workforce optimization to transform legacy on-premise infrastructure. Trading range-bound for months, I expect FIVN stock to break out in 2024.
The company continues to gain market share in its key segments, powering enterprise contact center migration to the cloud. Profitability runways support significant equity upside even from current reasonable valuations. Indeed, Five9 holds tangible upside in my view if execution endures.
Its solutions should only increase in strategic necessity as digital engagement expands. Five9 appears positioned to deliver significant rewards to patient investors from current prices. Specifically, the company’s earnings per share are expected to double from 2023 to 2027 and then double again from 2027 to 2032. Revenue growth should be even faster, potentially reaching $4.5 billion by 2032. That’s the kind of growth long-term investors should be after.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.