Value In The Cloud

The future of business is in cloud-based software, whether it is to streamline workflows, protect proprietary operations, or getting product & brand exposure. The world is digitalizing quickly, and there is an enormous amount of opportunity for enterprises that can serve evolving business needs.

I am going to discuss 3 fast-growing software companies with young shares that may be undervalued.

Crowdstrike (CRWD)

CrowdStrike has traded all over the board since its IPO in June of last year, trading up over $100 in late summer then plummeting below $45 in the fall. CRWD is sitting at around $60 presently and has some momentum behind it. It could be time to consider buying this fast-growing enterprise security stock.

CrowdStrike is a modern cloud-based solution for the escalating security threats that the internet age has brought. This company leverages AI, cloud computing, and graph databases for its security software. CrowdStrike’s security AI is perpetually improving as it advances from crowdsourcing and economies of scale. CRWD’s cloud-based Falcon platform is an intelligent and evolving digital protector that detects and stops breaches in real-time.

This firm is growing fast with the past twelve months exhibiting roughly 100% subscription growth. The subscription-based model allows for reliable revenue streams, and its best-in-class innovative product offering is driving consistent growth. CRWD has a growing addressable market with endpoint uses extending to everything from smartphones, the internet of things (IoT) devices. Its cloud-based product gives it an enormous amount of user flexibility for any device that requires digital protection.

Investors have traded CRWD down due to its unprofitability, which we have seen with a lot of 2019 IPOs such as Uber (UBER), Pinterest (PINS), and Slack (WORK). This investor concern has ripened up some of these unprofitable but high-potential firms for savvy buys.

CrowdStrike Holdings Inc. Price, Consensus and EPS Surprise

CrowdStrike Holdings Inc. Price, Consensus and EPS Surprise

CrowdStrike Holdings Inc. price-consensus-eps-surprise-chart | CrowdStrike Holdings Inc. Quote

Sell-side analysts are giving CRWD an average target price of $78.50, which would represent an over 30% price appreciation. Now is the time to buy the next leader in enterprise security.

Zendesk (ZEN)

ZEN has had a lot of momentum driving it since the beginning of the year, with the share price up 13%. The stock has slipped roughly 5% from its highs earlier this week, making this innovative enterprise a more attractive investment.

Zendesk, Inc. Price, Consensus and EPS Surprise

Zendesk, Inc. Price, Consensus and EPS Surprise

Zendesk, Inc. price-consensus-eps-surprise-chart | Zendesk, Inc. Quote

Zendesk is a cloud-based platform that helps businesses improve their customer experience. The company started as a customer support cloud, and now with Zendesk Sunshine, it has become a complete customer relationship management platform. Zendesk initially catered to growing small-to-mid-sized businesses (SMB) who are just beginning to have significant customer relations issues. Today the company services an increasing number of Fortune 500 enterprises.

The platform provides businesses with omnichannel solutions so that they can meet their customers’ needs in a way that is most convenient to the customer. Zendesk has helped connect nearly 900 million customer queries with a solution in the past year.

In this digital age we the markets have seen a plethora of CRM platforms, so what makes Zendesk worth investing in?

Zendesk focusses on ease of implementation and use, with all the sophisticated software being handled on the backend. You don’t need a professional to help integrate like you would with Salesforce.

The platform is open and cloud-based, meaning that you can access it wherever and whenever you want. It also is easily integrated into other enterprise software.

Gartner has recognized Zendesk as the Magical Quadrant leader in CRM Customer Service Centers for 3 years running. In a press release regarding this award, the firm expressed its thoughts about this award means. “With one of the fastest-growing customer bases of any vendor, Zendesk believes it was recognized for its overall value proposition, ease of set-up, usability, API integration, and rapid adoption.”

Zendesk has been expanding its topline by more than 30% annually since it went public in 2014 and continues to outpace analysts’ sales estimates. 16 out of 17 analysts are calling this stock a buy right now. ZEN is an increasingly attractive buy as it falls with the broader market.

Zuora (ZUO)

Zuora is a cloud-based product leading the charge in what is now being seen as the ideal tech business model, subscription-based revenue. This niche service is helping companies implement the subscription-based business model, offering everything from the initial launch to revenue recognition and data collection.

This enterprise is itself subscription-based, meaning that Zuora is able to achieve reliable growing revenue with expanding margins as its scales. This enterprise has barely any debt on its balance sheet and $170 million in cash, giving it some financial margin for its unprofitable growth phase.

ZUO went public in Q2 of 2018, but the stock has not performed as well as investors had expected. The share price depreciation was associated with sales execution and integration issues with its flagship product (RevPro) and a profitability outlook delay. Zuora just hired on two new execs to manage its present challenges and analysts are optimistic that this move will resolve the temporary concerns.

Zuora, Inc. Price, Consensus and EPS Surprise

Zuora, Inc. Price, Consensus and EPS Surprise

Zuora, Inc. price-consensus-eps-surprise-chart | Zuora, Inc. Quote

This niche business model is innovative and original with a substantial competitive moat. Once the short-term execution issues are resolved, analysts are projecting that Zuora’s long-term subscription growth level will jump to between 25-30%.

Zuora’s current headwinds have pushed the stock down to a Zacks Rank #4 (Sell), but it is a stock to keep on your radar.

Look for ZUO’s Q4 earnings report after the bell on March 12th. These earnings should shed some light on the company’s new management and how effectively they have been able to overcome the present challenges facing the company.

Take Away

There are very few undervalued software companies left on the market with all the major equity indices trading right off of all-time highs. These options I discussed above could provide you with the savvy software buy you’ve been looking for.

Keep in mind that these stocks are high-risk high-reward plays with none of them currently turning a profit. These firms have compelling product offerings that are gaining traction fast and could have a massive payout once they achieve profitability.  

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Value In The Cloud