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 Tuesday, August 20, 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.

Consensus Cloud Solutions Inc’s Value Grade

Value Grade:

Consensus Cloud Solutions, Inc. is a digital fax provider. The Company provides secure information delivery services with a scalable software-as-a-service platform. It provides data transformation solutions for regulated industries such as healthcare, finance, insurance, real estate and manufacturing, as well as technology for state and the federal government. Its solutions consist of cloud faxing; digital signature; intelligent data extraction using natural language processing and artificial intelligence; robotic process automation; interoperability; workflow enhancement, and a connectivity and integration engine for healthcare providers. The Company's solutions can be combined with managed services for optimal outcomes. Its small office/home office (SoHo) brands include eFax, jSign, MyFax, Sfax, Metrofax, and SRfax. Its solutions include eFax Corporate, ECFax, Unite, jSign, Conductor, Clarity and eFax. 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 96, which is considered to be undervalued.

When you look at Consensus Cloud Solutions Inc’s price-to-sales ratio at 1.11 compared to the industry median at 3.68, 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 4.34 compared to the industry median at 43.03. 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 5.4, when compared to the industry median of 23.2, 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 (2.18%). 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 29.53. 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.

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 3.39.

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.

Upland Software Inc’s Value Grade

Value Grade:

Upland Software, Inc. provides cloud-based software applications. The Company's applications enable its customers to drive digital transformation in various business functions, including marketing, sales, contact center, knowledge management, project management, information technology, business operations, and human resources and legal. Its applications interact with consumers across multiple channels to acquire new customers, drive product and service utilization, and resolve issues. It offers applications that help organizations optimize their sales opportunities and account management processes, coordinate proposal and reference activities, collaborate on the creation and publication of digital content and gain increased control over key sales and marketing workflows, activities and budgets. It offers applications that improve customer experience and reduce call volume and cycle times through customer self-service products and voice of the customer (VoC) 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.

Upland Software Inc has a Value Score of 80, which is considered to be undervalued.

Upland Software Inc’s price-to-book ratio is lower than its peers. This could make Upland Software Inc more attractive for value investors when compared to the industry median at 3.39.

You can read more about Upland 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 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.

• Consensus Cloud Solutions Inc stock has a Value Grade of A.
• WM Technology Inc stock has a Value Grade of B.
• Upland Software 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 Tuesday, August 20
• 7 Undervalued Software Stocks for Monday, August 19
• What You Need to Know About Palo Alto Networks Inc's Q4 Earnings
• Why Bandwidth Inc’s (BAND) 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.