Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 5 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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5 Undervalued Software Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 5 undervalued stocks in the Software industry for Friday, November 24, 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.

BSQUARE Corporation’s Value Grade

Value Grade:

Bsquare Corporation develops and deploys technologies for the makers and operators of connected devices. The Company?s segments include Partner Solutions and Edge to Cloud. It specializes in device operating system (OS) image development and configuration, device software development and testing. It offers a suite of software, tools, and services to its customers that are packaged based on technical and business requirements, such as embedded OS and system software sales and support, OS configuration services, device management solutions, and Internet of things (IoT) and fleet transition services. Its embedded OS and system software sales and support provide license compliance services, technical support, and manufacturing support. Its OS configuration services offers a suite of services to help customers specify and configure the OS software (Windows IoT, Linux, and Android) for their device based on their hardware configuration, application software, and security policies.

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.

BSQUARE Corporation has a Value Score of 74, which is considered to be undervalued.

When you look at BSQUARE Corporation’s price-to-sales ratio at 1.17 compared to the industry median at 3.32, this company has a lower price relative to revenue compared to its peers. This could make BSQUARE Corporation’s stock more attractive for value investors.

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. BSQUARE Corporation’s shareholder yield is higher than its industry median ratio of (2.55%). 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.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. BSQUARE Corporation’s price-to-book ratio is lower than its industry median ratio of 2.99. This could make BSQUARE Corporation more attractive to investors looking for a new addition to their portfolio.

FinVolution Group (ADR)’s Value Grade

Value Grade:

FinVolution Group, formerly PPDAI GROUP INC, is a China-based company mainly engaged in operating an online consumer finance platform. The Company’s products and services include loan services offered to borrowers, investment services offered to individual investors and institutional funding partners. The loan services offered to borrowers include standard loan products, consumption loan products and other loan products. The investment services offered to individual investors include self-discretionary investing tools, automated investing tools, investment programs and a secondary loan market. The Company also introduces borrowers to institutional funding partners and provides preliminary credit assessment services as well as other services.

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.

FinVolution Group (ADR) has a Value Score of 99, which is considered to be undervalued.

FinVolution Group (ADR)’s price-earnings ratio is 3.9 compared to the industry median at 45.1. This means that it has a lower price relative to its earnings compared to its peers. This makes FinVolution Group (ADR) more attractive for value investors.

FinVolution Group (ADR)’s price-to-book ratio is higher than its peers. This could make FinVolution Group (ADR) less attractive for value investors when compared to the industry median at 2.99.

You can read more about FinVolution Group (ADR)’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.

Ibex Ltd’s Value Grade

Value Grade:

IBEX Limited is a provider in global business process outsourcing and end-to-end customer engagement technology solutions that helps drive customer experiences (CX) for brands. The services it provides for clients are digital and traditional omni-channel capabilities. The Company has designed a differentiated suite of digital and operational solutions meant to manage interactions throughout the phases of the customer lifecycle, across multiple channels, customized to a client's specific needs. Its services cover three areas: Digital & Omni-Channel Customer Experience (ibex Connect), Digital Marketing and E-Commerce (ibex Digital), and Digital CX surveys and analytics (ibex CX). The ibex Connect business unit delivers differentiated customer service, technical support, revenue generation and other value-added outsourced back-office services to its clients. The ibex Digital offers digital marketing, e-commerce technology and platform solutions for brands.

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.

Ibex Ltd has a Value Score of 69, which is considered to be undervalued.

Ibex Ltd’s price-earnings ratio is 10.5 compared to the industry median at 45.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Ibex Ltd more attractive for value investors.

Ibex Ltd’s price-to-book ratio is higher than its peers. This could make Ibex Ltd less attractive for value investors when compared to the industry median at 2.99.

You can read more about Ibex 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.

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 76, which is considered to be undervalued.

Magic Software Enterprises Ltd’s price-earnings ratio is 11.0 compared to the industry median at 45.1. 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 2.99.

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.

Marin Software Inc’s Value Grade

Value Grade:

Marin Software Incorporated provides digital marketing software for search, social and eCommerce channels. It offers unified software-as-a-service (SaaS), an advertising management platform for advertisers and agencies. The Company?s platform offers analytics, workflow and optimization solution for marketing professionals, allowing users to manage their digital advertising spend. The Company's software solution is designed to help customers to measure the effectiveness of their advertising campaigns through reporting and analytics capabilities and manage and execute campaigns through an intuitive user interface and underlying technology that streamlines and automates key functions, such as advertisement creation and bidding, across multiple publishers and channels. Its software solutions also optimize campaigns across multiple publishers and channels based on market and business data to achieve desired revenue outcomes using predictive bid management technology.

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.

Marin Software Inc has a Value Score of 91, which is considered to be undervalued.

Marin Software Inc’s price-to-book ratio is higher than its peers. This could make Marin Software Inc less attractive for value investors when compared to the industry median at 2.99.

You can read more about Marin Software 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 5 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.

• BSQUARE Corporation stock has a Value Grade of B.
• FinVolution Group (ADR) stock has a Value Grade of A.
• Ibex Ltd stock has a Value Grade of B.
• Magic Software Enterprises Ltd stock has a Value Grade of B.
• Marin Software Inc stock has a Value Grade of A.

Now that you have a bit more background about each of the 5 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.

• 5 Undervalued Software Stocks for Friday, November 24
• Which Is a Better Investment, Agilysys, Inc. or Paylocity Holding Corp Stock?
• Which Is a Better Investment, Paylocity Holding Corp or Liveramp Holdings Inc Stock?
• 7 Undervalued Software Stocks for Thursday, November 23

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.