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 Thursday, August 08, 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.

Femto Technologies Inc’s Value Grade

Value Grade:

Femto Technologies Inc., formerly BYND Cannasoft Enterprises Inc., is an integrated software company. It pioneers in women's care technology, focused on advancing women's wellness and lifestyle, leveraging its Smart Release Technology and core ability to innovate data-driven products to focus on the development of smart products in the sectors of intimacy, sports, hair, and cosmetics. It owns and markets Benefit CRM, a customer relationship management (CRM) software product enabling small and medium-sized businesses to optimize their day-to-day business activities such as sales management, personnel management, marketing, call center activities, and asset management. It owns the intellectual property for the EZ-G device. This therapeutic device uses proprietary software to regulate the flow of low concentrations of cannabidiol oil, hemp seed oil, and other natural oils into the soft tissues of the female reproductive system to potentially treat a variety of women's health issues.

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.

Femto Technologies Inc has a Value Score of 87, which is considered to be undervalued.

When you look at Femto Technologies Inc’s price-to-sales ratio at 0.32 compared to the industry median at 3.38, this company has a lower price relative to revenue compared to its peers. This could make Femto Technologies Inc’s stock more attractive for value investors.

Now, let’s assess Femto Technologies Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 1.3, when compared to the industry median of 24.6, 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. Femto Technologies Inc’s shareholder yield is lower than its industry median ratio of (2.36%). 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. Femto Technologies Inc’s price-to-book ratio is lower than its industry median ratio of 3.02. This could make Femto Technologies Inc more attractive to investors looking for a new addition to their portfolio.

iHuman Inc - ADR’s Value Grade

Value Grade:

iHuman Inc is a China-based company engaged in providing education services and products for kids. The Company mainly provides learning services for 3-8 years old children under its brand iHuman, such as iHuman Chinese, iHuman English World, iHuman Pinyin, iHuman Magic Math and other learning applications. The Company also provides learning materials and devices to individual users, education organizations and third-party distributors. The learning materials cover literacy and reading, English, mathematics, music and other subjects.

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.

iHuman Inc - ADR has a Value Score of 95, which is considered to be undervalued.

iHuman Inc - ADR’s price-earnings ratio is 3.4 compared to the industry median at 42.7. This means that it has a lower price relative to its earnings compared to its peers. This makes iHuman Inc - ADR more attractive for value investors.

iHuman Inc - ADR’s price-to-book ratio is higher than its peers. This could make iHuman Inc - ADR less attractive for value investors when compared to the industry median at 3.02.

You can read more about iHuman 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.

WM Technology Inc’s Value Grade

Value Grade:

WM Technology, Inc. operates the online cannabis marketplace for consumers together with a set of eCommerce and compliance software solutions for cannabis businesses, which are sold to retailers and brands in the United States and Canadian cannabis markets. The Company?s business primarily consists of its commerce-driven marketplace (Weedmaps), and its fully integrated suite of end-to-end software-as-a-service (SaaS) solutions software offering (Weedmaps for Business). The Weedmaps marketplace provides cannabis consumers with information regarding cannabis retailers and brands. In addition, the Weedmaps marketplace aggregates data from a variety of sources, including retailer point-of-sale solutions to provide consumers to browse by strain, price, cannabinoids and other information regarding locally available cannabis products, through the Company?s website and mobile apps. Its subscription package includes WM Listings, WM Listings, WM Listings, WM Connectors and WM Insights.

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.

WM Technology Inc has a Value Score of 65, which is considered to be undervalued.

WM Technology Inc’s price-to-book ratio is lower than its peers. This could make WM Technology Inc more attractive for value investors when compared to the industry median at 3.02.

You can read more about WM Technology 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.

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 96, which is considered to be undervalued.

Hello Group Inc (ADR)’s price-earnings ratio is 6.1 compared to the industry median at 42.7. 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 3.02.

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.

Marin Software Inc’s Value Grade

Value Grade:

Marin Software Incorporated is a provider of digital marketing software for search, social and e-commerce channels, offered as a software-as-a-service (SaaS) advertising management platform for advertisers and agencies advertisers and agencies. Its platform is an analytics, workflow and optimization solution for marketing professionals, allowing them to manage their digital advertising spend effectively. The Company market and sell its solutions to advertisers directly and through advertising agencies. Advertisers use its platform to create, target, and convert precise audiences based on recent buying signals from users' search, social, and e-commerce interactions. Its platform integrates with publishers, such as Amazon, Apple, Facebook, Google, LinkedIn, and others. Additionally, it has integrations with various Web analytics and advertisement-serving solutions and critical enterprise applications, enabling its customers to measure the return on investment of their marketing programs.

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 76, 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 3.02.

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.

Smith Micro Software Inc’s Value Grade

Value Grade:

Smith Micro Software, Inc. develops software to simplify and enhance the mobile experience, providing solutions to wireless service providers around the world. It operates through the Wireless segment. From enabling the family digital lifestyle to providing voice messaging capabilities, its solutions enhance connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer Internet of Things (IoT) devices. Its portfolio also includes a range of products for creating, sharing, and monetizing content, such as visual voice messaging, optimizing retail content display and performing analytics on any product set. Its products include SafePath, ViewSpot, and CommSuite. SafePath consists of SafePath Family, SafePath IoT, SafePath Home, and SafePath Premium. The SafePath product suite provides tools to protect family digital lifestyles and manage connected devices both inside and outside the home. ViewSpot is its retail display management 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.

Smith Micro Software Inc has a Value Score of 65, which is considered to be undervalued.

Smith Micro Software Inc’s price-to-book ratio is higher than its peers. This could make Smith Micro Software Inc less attractive for value investors when compared to the industry median at 3.02.

You can read more about Smith Micro 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.

Taboola.com Ltd’s Value Grade

Value Grade:

Taboola.com Ltd. is a technology company, which powers recommendations across the Open Web with an artificial intelligence (AI)-based, algorithmic engine. The Company’s platform, powered by artificial intelligence, is used by digital properties, including Websites, devices and mobile apps, to drive monetization and user engagement. Digital properties use the Company’s technology platforms to achieve their business goals, such as driving new audiences to their sites and apps or increasing engagement on site. It empowers advertisers to leverage its proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad formats across digital properties. As part of its e-Commerce offerings, it also syndicates its retailer advertisers’ monetized product listings and links (clickable advertisements) into commerce content-oriented consumer experiences on both the Open Web and within the dominant traditional ad 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.

Taboola.com Ltd has a Value Score of 61, which is considered to be undervalued.

Taboola.com Ltd’s price-to-book ratio is higher than its peers. This could make Taboola.com Ltd less attractive for value investors when compared to the industry median at 3.02.

You can read more about Taboola.com 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.

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.

• Femto Technologies Inc stock has a Value Grade of A.
• iHuman Inc - ADR stock has a Value Grade of A.
• WM Technology Inc stock has a Value Grade of B.
• Hello Group Inc (ADR) stock has a Value Grade of A.
• Marin Software Inc stock has a Value Grade of B.
• Smith Micro Software Inc stock has a Value Grade of B.
• Taboola.com Ltd stock has a Value Grade of B.

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 Thursday, August 08
• 3 Undervalued Software Stocks for Wednesday, August 07
• What You Need to Know About Applovin Corp's Q2 Earnings
• What You Need to Know About JFrog Ltd's Q2 Earnings

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.