The continuation of remote working and ongoing digital transformation have been helping the software industry generate unabated growth. So, we think it could be wise to bet now on fundamentally sound software stocks SAP (SAP) and QAD (QADA), which are expected to gain in the near term based on their strong financials and positive analyst sentiment.

Most software stocks have soared in price over the past year because the pandemic-induced remote lifestyle forced individuals and businesses to depend on software, particularly cloud-based services. The trend has been continuing this year, with an increasing adoption of advanced software in almost every industry as part of their 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.

Given this backdrop, we think it could be wise to scoop up the shares of software stocks SAP SE and QAD Inc. because of their solid financials and continued innovations. Both names are rated Strong Buy in our POWR Ratings system.

SAP SE

Headquartered in Walldorf, Germany, SAP is a software application company that operates through four segments: Applications, Technology & Support; Concur; Qualtrics; and Services. Its offerings include SAP S/4HANA, SAP Intelligent Asset Management, and its SAP SuccessFactors Human Experience Management Suite.

SAP announced on May 20 that it had integrated advanced support into its solutions to deliver the intuitive experience modern business users need with its Built-In Support concept that is based on artificial intelligence (AI) and machine learning (ML)-based technologies. As a result, the company could witness increasing demand for its solution.

SAP’s non-IFRS cloud revenue increased 7% year-over-year to €2.15 billion ($2.54 billion) for its fiscal first quarter, ended March 31, 2021. Its non-IFRS operating profit grew 17% year-over-year to €1.74 billion ($2.06 billion). Its non-IFRS profit after tax came in at €1.72 billion ($2.03 billion), which represents a 70% year-over-year increase. The company’s non-IFRS EPS was  €1.40 ($1.65), up 63% year-over-year.

The company’s EPS is expected to increase 5.8% year-over-year to $1.45 for the quarter ended June 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 3.9% year-over-year to $33.78 billion in  2022. The stock has rallied 18.1% over the past six months to close yesterday’s trading session at $147.69.

SAP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Value, Stability, Sentiment, and Quality. We have also graded SAP for Growth and Momentum. Click here to access all of SAP’s ratings. SAP is ranked #3 of 132 stocks in the Software – Application industry.

SAP shares were trading at $148.40 per share on Friday afternoon, up $0.71 (+0.48%). Year-to-date, SAP has gained 15.20%, versus a 16.73% rise in the benchmark S&P 500 index during the same period.

QAD Inc.

Santa Barbara, Calif.-based QADA, together with its subsidiaries, provides cloud-based enterprise software solutions. It offers effective enterprise management software products that include  financials, internationalization, cloud EDI, EDI eCommerce, and e-invoicing solutions. In addition, the company offers customer support and product update services, as well as professional services, and serves automotive, life sciences, and consumer products.

On June 2,QADA signed a partnership agreement with T.C.C. Technology Co., Ltd., making it a channel partner in Thailand. Jan Biezepol, QADA’s Managing Director, South Asia, said “This partnership will supplement our efforts to grow adoption of QAD Adaptive ERP and the QAD Adaptive Applications portfolio of solutions by expanding our customer base in Thailand and the Asia-Pacific region.”

QADA’s revenue increased 11.9% year-over-year to $82.97 million for its fiscal first quarter, ended April 30, 2021. Its adjusted EBITDA grew 35.5% year-over-year to $6.24 million. Its non-GAAP income before taxes came in at $4.63 million, which represents a 39.8% year-over-year increase. The company’s EPS was  $0.09 compared to a $0.02 loss per share  in the prior-year period.

Analysts expect QADA’s EPS and revenue to increase 7.8% and 8.7%, respectively, year-over-year to $1.38 and $357.65 in  2023. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has soared 110.6% over the past year to close yesterday’s trading session at $86.75.

QADA’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The stock has an A grade for Growth and Quality, and a B grade for Stability and Sentiment.

Within the Software – Application  industry, QADA is ranked #6. To see the additional POWR Ratings for QADA (Value and Momentum), click here.