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, July 05, 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.

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 80, which is considered to be undervalued.

When you look at Magic Software Enterprises Ltd’s price-to-sales ratio at 0.95 compared to the industry median at 3.64, this company has a lower price relative to revenue compared to its peers. This could make Magic Software Enterprises Ltd’s stock more attractive for value investors.

Magic Software Enterprises Ltd’s price-earnings ratio is 13.87 compared to the industry median at 46.26. This means it has a lower share price relative to earnings compared to its peers. This could make Magic Software Enterprises Ltd more attractive for value investors.

Now, let’s assess Magic Software Enterprises Ltd’s EV/EBITDA ratio, also known as enterprise multiple. At 7.4, when compared to the industry median of 24.7, 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. Magic Software Enterprises Ltd’s shareholder yield is higher than its industry median ratio of (2.29%). 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. Magic Software Enterprises Ltd’s price-to-book ratio is lower than its industry median ratio of 3.21. This could make Magic Software Enterprises Ltd more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Magic Software Enterprises Ltd’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Magic Software Enterprises Ltd’s price-to-free-cash-flow ratio is lower than its industry median ratio of 29.24. This could make Magic Software Enterprises Ltd more attractive because the lower P/FCF ratio indicates that Magic Software Enterprises Ltd 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.

Hello Group Inc (ADR)’s Value Grade

Value Grade:

Hello Group Inc, formerly Momo Inc, is a China-based online social and entertainment company. The Company operates in three segments. Momo segment and Tantan segment mainly provide live video service, value-added services including membership subscription and virtual gift service, and mobile marketing services including advertising and marketing solutions. QOOL segment provides music service revenues, film distribution service and film promotion service. The Company also operates other applications to serve different social and entertainment demands from its users.

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.

Hello Group Inc (ADR) has a Value Score of 97, which is considered to be undervalued.

Hello Group Inc (ADR)’s price-earnings ratio is 5.7 compared to the industry median at 46.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Hello Group Inc (ADR) more attractive for value investors.

Hello Group Inc (ADR)’s price-to-book ratio is higher than its peers. This could make Hello Group Inc (ADR) less attractive for value investors when compared to the industry median at 3.21.

You can read more about Hello Group Inc (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.

PLAYSTUDIOS Inc’s Value Grade

Value Grade:

PLAYSTUDIOS, Inc. is a developer of free-to-play casual games for mobile and social platforms. The Company's game portfolio includes a diverse range of titles, from social casino and card games to puzzle and adventure games. It operates in two segments: playGAMES and playAWARDS. playGAMES segment is a developer and publisher of digital games on mobile and Web platforms. The Company operates primarily in the social gaming market, which is characterized by gameplay online or on mobile devices, that is social, competitive, and self-directed in pace and session length. playGAMES also operate in the casual space. playAWARDS segment consists of all of its loyalty assets globally in which it is engaged in developing an end-to-end loyalty solution to help clients reward, enrich, motivate and retain customers, including program design, points management and administration, and broad-based fulfillment and redemption across multiple channels.

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.

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

PLAYSTUDIOS Inc’s price-to-book ratio is higher than its peers. This could make PLAYSTUDIOS Inc less attractive for value investors when compared to the industry median at 3.21.

You can read more about PLAYSTUDIOS 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.

Urgent.ly Inc’s Value Grade

Value Grade:

Urgent.ly Inc. is a provider of digital roadside and mobility assistance technology and services. The Company provides connected mobility assistance software platform, matching vehicle owners and operators with service professionals who deliver traditional roadside assistance, proactive maintenance, and repair services. The Company’s digitally native software platform combines location-based services, real-time data, artificial intelligence (AI) and machine-to-machine communication to power roadside assistance solutions for brands across automotive, insurance, telematics, and other transportation-focused verticals. The Company operates through one segment: Mobility Assistance Services. The Mobility Assistance Services segment includes all products, services and software used to generate revenue under the Company’s commercial agreements. Its customer partners include original equipment manufacturers, automotive insurance companies, and ride-hailing 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.

Urgent.ly Inc has a Value Score of 88, which is considered to be undervalued.

Urgent.ly Inc’s price-earnings ratio is 0.3 compared to the industry median at 46.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Urgent.ly Inc more attractive for value investors.

You can read more about Urgent.ly 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.

VIQ Solutions Inc’s Value Grade

Value Grade:

VIQ Solutions Inc. is a Canada-based global provider of secure, artificial intelligence (AI)-driven, digital voice and video capture technology and transcription services. The Company's modular software allows customers to integrate the platform at any stage of their organization's digitization, from the capture of digital content from video and audio devices through to online collaboration, mobility, data analytics, and integration with sensors, facial recognition, speech recognition and case management or patient record systems. It provides services to various industries, such as courts, law firms, law enforcement, insurance, government, corporate and finance, media broadcasting and transcription companies. The Company's solutions include CapturePro, CapturePro Mobile, MobileMic Pro, NetScribe, aiAssist, FirstDraft, Carbon, Lexel and AccessPoint. Its CapturePro solution captures, manages and shares official court records, police interrogations or insurance investigations.

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.

VIQ Solutions Inc has a Value Score of 62, which is considered to be undervalued.

VIQ Solutions Inc’s price-to-book ratio is higher than its peers. This could make VIQ Solutions Inc less attractive for value investors when compared to the industry median at 3.21.

You can read more about VIQ Solutions 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.

• Magic Software Enterprises Ltd stock has a Value Grade of B.
• Hello Group Inc (ADR) stock has a Value Grade of A.
• PLAYSTUDIOS Inc stock has a Value Grade of B.
• Urgent.ly Inc stock has a Value Grade of A.
• VIQ Solutions Inc stock has a Value Grade of B.

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, July 05
• 3 Undervalued Software Stocks for Thursday, July 04
• 4 Undervalued Software Stocks for Wednesday, July 03
• Why Cardlytics Inc’s (CDLX) Stock Is Up 6.13%

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.