Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 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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3 Undervalued Software Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Software industry for Thursday, March 21, 2024. 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.

Ebix Inc’s Value Grade

Value Grade:

Ebix, Inc. is a provider of on-demand infrastructure software exchanges and e-commerce services to the insurance, financial, travel, cash remittance and healthcare industries. In the insurance sector, the Company?s main focus is to develop and deploy globally a variety of insurance and reinsurance exchanges on an on-demand basis using software-as-a-service (SaaS) enterprise solutions in the areas of customer relationship management (CRM), front-end and back-end systems, and outsourced administrative and risk compliance. The Company?s EbixCash Financial exchange portfolio of software and services consists of domestic and international money remittance, foreign exchange (Forex), travel, pre-paid gift cards, utility payments, and lending and wealth management in India and other primarily Southeast Asian markets. It operates India's airport Forex business, with operations in approximately 20 international airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata.

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.

Ebix Inc has a Value Score of 100, which is considered to be undervalued.

When you look at Ebix Inc’s price-to-sales ratio at 0.04 compared to the industry median at 3.93, this company has a lower price relative to revenue compared to its peers. This could make Ebix Inc’s stock more attractive for value investors.

Ebix Inc’s price-earnings ratio is 5.68 compared to the industry median at 51.18. This means it has a lower share price relative to earnings compared to its peers. This could make Ebix Inc more attractive for value investors.

Now, let’s assess Ebix Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 6.9, when compared to the industry median of 24.3, 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. Ebix Inc’s shareholder yield is higher than its industry median ratio of (2.11%). 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. Ebix Inc’s price-to-book ratio is lower than its industry median ratio of 3.26. This could make Ebix Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Ebix Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Ebix Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 32.13. This could make Ebix Inc more attractive because the lower P/FCF ratio indicates that Ebix 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.

Immersion Corporation’s Value Grade

Value Grade:

Immersion Corporation is a developer and provider of technologies for haptics. The Company develops, licenses, and supports a range of software and intellectual property (IP) that fully engage users senses of touch when operating digital devices. The Company offers licenses to its patented technology to its customers and offers its customers enabling software, related tools and technical assistance designed to integrate the Company's patented technology into its customers products or enhance the functionality of its patented technology. The Company's licenses enable its customers to deploy haptically enabled devices, content and other offerings, which they typically sell under their own brand names. It is focused on various target application areas, such as mobile devices, wearables, consumer, mobile entertainment and other content; virtual and augmented reality; console gaming; automotive; medical, and residential, commercial, and industrial Internet of Things.

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 62, which is considered to be undervalued.

Immersion Corporation’s price-earnings ratio is 7.2 compared to the industry median at 51.2. 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 3.26.

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.

Zerofox Holdings Inc’s Value Grade

Value Grade:

ZeroFox Holdings, Inc. is a provider of software-as-a-service (SaaS)-based external cybersecurity solutions. The Company provides customers with a SaaS-based platform for external cybersecurity (Platform) that protects organizations from threats outside the traditional corporate perimeter. Its platform combines protection, intelligence, adversary disruption, and response services into an integrated solution. The Company?s platform is a cloud-native enterprise software-as-a-service application focused on providing external cybersecurity teams with solutions to address external cybersecurity threats and risks. Its platform employs continuous digital identification and detection, threat intelligence, and persistent adversary disruption to support a variety of cybersecurity use cases that address pervasive business challenges. Its platform provides capabilities across four strategic platform pillars: ZeroFox Protection, ZeroFox Intelligence, ZeroFox Disruption, and ZeroFox Response.

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.

Zerofox Holdings Inc has a Value Score of 74, which is considered to be undervalued.

Zerofox Holdings Inc’s price-to-book ratio is higher than its peers. This could make Zerofox Holdings Inc less attractive for value investors when compared to the industry median at 3.26.

You can read more about Zerofox Holdings 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 3 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.

• Ebix Inc stock has a Value Grade of A.
• Immersion Corporation stock has a Value Grade of B.
• Zerofox Holdings Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 3 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.

• 3 Undervalued Software Stocks for Thursday, March 21
• 6 Undervalued Software Stocks for Wednesday, March 20
• Why Alight Inc’s (ALIT) Stock Is Up 14.03%
• Why Applovin Corp’s (APP) Stock Is Up 4.26%

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.