Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 7 stocks made the list for top value stocks in the Software industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued Software Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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7 Undervalued Software Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 7 undervalued stocks in the Software industry for Friday, November 17, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Software industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Consensus Cloud Solutions Inc’s Value Grade

Value Grade:

Consensus Cloud Solutions, Inc. is a provider of secure information delivery services with a scalable Software-as-a-Service platform. Its communication and digital signature solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries. Its products and solutions include eFax Corporate, Unite, jSign, Conductor, Clarity and eFax. eFax Corporate provides digital cloud fax technology. Unite is a single platform that allows the user to choose between several protocols to send and receive healthcare information in an environment. jSign provides electronic signature and digital signature solutions to businesses. Clarity is engaged in using natural language processing and artificial intelligence information. eFax is an online faxing service for customers. In addition to eFax, it offers a variety of brands for subscription. Conductor is a robust interface engine and complete interoperability platform.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Consensus Cloud Solutions Inc has a Value Score of 86, which is considered to be undervalued.

When you look at Consensus Cloud Solutions Inc’s price-to-sales ratio at 1.19 compared to the industry median at 3.46, this company has a lower price relative to revenue compared to its peers. This could make Consensus Cloud Solutions Inc’s stock more attractive for value investors.

Consensus Cloud Solutions Inc’s price-earnings ratio is 5.69 compared to the industry median at 45.36. This means it has a lower share price relative to earnings compared to its peers. This could make Consensus Cloud Solutions Inc more attractive for value investors.

Now, let’s assess Consensus Cloud Solutions Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 6.8, when compared to the industry median of 24.1, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Consensus Cloud Solutions Inc’s shareholder yield is higher than its industry median ratio of (2.33%). Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

Lastly, let’s take a look at Consensus Cloud Solutions Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Consensus Cloud Solutions Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 30.25. This could make Consensus Cloud Solutions Inc more attractive because the lower P/FCF ratio indicates that Consensus Cloud Solutions Inc is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Infobird Co Ltd’s Value Grade

Value Grade:

Infobird Co Ltd is a China-based holding company mainly engaged in providing software-as-a-service (SaaS) and innovative artificial intelligence (AI) powered products. The Company mainly uses self-developed cloud computing structure, AI and machine learning capabilities, patented Voice over Internet Protocol or VoIP application technologies, and no-code development platform, providing standard and customized customer relationship management cloud-based services, and business process outsourcing (BPO) services to its clients at all stages of the sales process. The Company also offers AI-powered cloud-based sales force management software including intelligent quality inspection and intelligent training software to help its clients monitor, benchmark and improve the performances of agents.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Infobird Co Ltd has a Value Score of 83, which is considered to be undervalued.

Infobird Co Ltd’s price-to-book ratio is higher than its peers. This could make Infobird Co Ltd less attractive for value investors when compared to the industry median at 3.08.

You can read more about Infobird Co Ltd’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Immersion Corporation’s Value Grade

Value Grade:

Immersion Corporation is a licensing company focused on the invention, acceleration, and scaling, through licensing, of haptic technologies. The Company's primary business is focused on the mobility, gaming, and automotive markets, including entertainment, virtual and augmented reality, and wearables, as well as residential, commercial, and industrial Internet of Things. It provides technology solutions for mobile, automotive, gaming, and consumer electronics. It offers patent licenses and assistance such as reference designs, prototypes and enablement services to automotive makers and suppliers. Its licensees include ALPS Alpine, Continental, Preh, Panasonic, Mobase Electronics, Nippon Seiki, Vishay Intertechnology, Tokai Rika and Lexmark. In additional, the Company has licensed its patents to third party gaming peripheral manufacturers and distributors for use in spinning mass and force feedback devices controllers, steering wheels and joysticks, to be used with PC platforms.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Immersion Corporation has a Value Score of 63, which is considered to be undervalued.

Immersion Corporation’s price-earnings ratio is 5.6 compared to the industry median at 45.4. This means that it has a lower price relative to its earnings compared to its peers. This makes Immersion Corporation more attractive for value investors.

Immersion Corporation’s price-to-book ratio is higher than its peers. This could make Immersion Corporation less attractive for value investors when compared to the industry median at 3.08.

You can read more about Immersion Corporation’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Magic Software Enterprises Ltd’s Value Grade

Value Grade:

Magic Software Enterprises Ltd. is a provider of application development, business process integration platforms, vertical software solutions and related professional services. The Company is a vendor of information technology (IT) outsourcing services. Its software technology is used by customers to develop, deploy and integrate on premise, mobile and cloud-based business. It operates through two segments: software solutions and IT professional services. The software services segment includes software technology and complementary services. The IT professional services segment offers IT services in the areas of infrastructure design and delivery, application development, technology planning and implementation services, and communications services and solutions. Its product portfolio includes Magic xpa Application Platform, AppBuilder Application Platform and Magic xpi Integration Platform. Its vertical software packages include Leap, Hermes Solution, HR Pulse and MBS Solution.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Magic Software Enterprises Ltd has a Value Score of 79, which is considered to be undervalued.

Magic Software Enterprises Ltd’s price-earnings ratio is 10.1 compared to the industry median at 45.4. This means that it has a lower price relative to its earnings compared to its peers. This makes Magic Software Enterprises Ltd more attractive for value investors.

Magic Software Enterprises Ltd’s price-to-book ratio is higher than its peers. This could make Magic Software Enterprises Ltd less attractive for value investors when compared to the industry median at 3.08.

You can read more about Magic Software Enterprises Ltd’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Ryvyl Inc’s Value Grade

Value Grade:

RYVYL Inc. is a financial technology company. The Company develops, markets, and sells blockchain-based payment solutions. Its focus is to develop and monetize disruptive blockchain- based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. Its blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger. Its products include QuickCard Payment System, POS Solutions and Coyni Platform. QuickCard Payment System is a comprehensive physical and virtual payment card processing management system, including software that facilitates on and off ramp e-wallet management. The Coyni Platform offers custodial assurance by utilizing its stablecoin and blockchain technology in a closed-loop ecosystem. POS Solutions is its end-to-end point-of-sale solution, comprising both software and hardware.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Ryvyl Inc has a Value Score of 79, which is considered to be undervalued.

You can read more about Ryvyl Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

SeaChange International Inc’s Value Grade

Value Grade:

SeaChange International, Inc. provides video streaming, linear television (TV), and video advertising technology for operators, content owners, and broadcasters globally. The Company is engaged in the delivery of multiscreen, advertising and over-the-top (OTT) video management solutions. The Company?s software products and services facilitate the aggregation, licensing, management and distribution of video and advertising content for service providers, telecommunications companies, satellite operators, broadcasters and other content providers. Its technology enables operators, broadcasters, and content owners to launch and grow linear TV and direct-to-consumer streaming services to manage, curate, and monetize their content. It sells its software products and services worldwide, primarily to service providers, such as VIDAA USA Inc. and Liberty Global, plc; telecommunications companies, such as Verizon Communications, Inc., Frontier Communications Corporation and others.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

SeaChange International Inc has a Value Score of 74, which is considered to be undervalued.

SeaChange International Inc’s price-to-book ratio is higher than its peers. This could make SeaChange International Inc less attractive for value investors when compared to the industry median at 3.08.

You can read more about SeaChange International Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Zedge Inc’s Value Grade

Value Grade:

Zedge, Inc. is engaged in building digital marketplaces and competitive games. The Company's products include Zedge Ringtones and Wallpapers, which is a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones and notification sounds; pAInt, a generative artificial intelligence (AI) wallpaper maker; GuruShots, a skill-based photo challenge game, and Emojipedia. It uses open-source software in connection with its services. The Zedge Ringtones and Wallpapers app is available both in Google Play and the App Store. Its GuruShots product offers a platform spanning iOS, Android, and the Web that provides an educational and structured way for amateur photographers to compete in a variety of contests. It has added non-fungible token (NFT) functionality to a limited number of Zedge Premium creators via NFTs Made Easy, and all NFT Made Easy transactions are made using Zedge Credits. The Company serves over 40 million active users across its offerings.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Zedge Inc has a Value Score of 86, which is considered to be undervalued.

Zedge Inc’s price-to-book ratio is higher than its peers. This could make Zedge Inc less attractive for value investors when compared to the industry median at 3.08.

You can read more about Zedge Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Software Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Software stocks as well as other industrys.

Choosing Which of the 7 Best Software Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Consensus Cloud Solutions Inc stock has a Value Grade of A.
• Infobird Co Ltd stock has a Value Grade of A.
• Immersion Corporation stock has a Value Grade of B.
• Magic Software Enterprises Ltd stock has a Value Grade of B.
• Ryvyl Inc stock has a Value Grade of B.
• SeaChange International Inc stock has a Value Grade of B.
• Zedge Inc stock has a Value Grade of A.

Now that you have a bit more background about each of the 7 undervalued stocks in the Software industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Software Stocks

Want to learn more about Software stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 7 Undervalued Software Stocks for Friday, November 17
• Which Is a Better Investment, Paylocity Holding Corp or Q2 Holdings Inc Stock?
• 4 Undervalued Software Stocks for Thursday, November 16
• Which Is a Better Investment, Agilysys, Inc. or Liveramp Holdings Inc Stock?

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.