Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 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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4 Undervalued Software Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the Software industry for Friday, March 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.

AGM Group Holdings Inc’s Value Grade

Value Grade:

AGM Group Holdings Inc is a technology company engaged in global technology hardware supply chain and fintech blockchain ecosystem. The Company?s products and services include: futures trading solution catering to clients using MetaTrader 5; retail-orientated online trading education website; foreign exchange (Forex) trading system that provides services to financial institutions outside of China; technology hardware research and development, manufacture, and sales. The Company operates its businesses in both the United Stated and global markets.

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.

AGM Group Holdings Inc has a Value Score of 97, which is considered to be undervalued.

When you look at AGM Group Holdings Inc’s price-to-sales ratio at 0.26 compared to the industry median at 3.73, this company has a lower price relative to revenue compared to its peers. This could make AGM Group Holdings Inc’s stock more attractive for value investors.

AGM Group Holdings Inc’s price-earnings ratio is 2.14 compared to the industry median at 38.09. This means it has a lower share price relative to earnings compared to its peers. This could make AGM Group Holdings Inc more attractive for value investors.

Now, let’s assess AGM Group Holdings Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 0.7, when compared to the industry median of 19.2, 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. AGM Group Holdings Inc’s shareholder yield is higher than its industry median ratio of (2.01%). 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. AGM Group Holdings Inc’s price-to-book ratio is lower than its industry median ratio of 3.30. This could make AGM Group Holdings Inc more attractive to investors looking for a new addition to their portfolio.

Ebix Inc’s Value Grade

Value Grade:

Ebix, Inc. is a provider of on-demand software and e-commerce services to the insurance, financial services, travel, healthcare and e-learning industries. In the Insurance sector, the Company's main focus is to develop and deploy a range of insurance and reinsurance exchanges on an on-demand basis, while also, providing software-as-a-service (SaaS) enterprise solutions in the area of customer relationship management (CRM), front-end and back-end systems, outsourced administration and risk compliance services, around the world. 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, lending and wealth management across 75+ countries, including India. It operates India's airport Forex business, with operations in approximately 16 international airports, including Delhi, Mumbai, 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 89, which is considered to be undervalued.

Ebix Inc’s price-earnings ratio is 6.5 compared to the industry median at 38.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Ebix Inc more attractive for value investors.

Ebix Inc’s price-to-book ratio is higher than its peers. This could make Ebix Inc less attractive for value investors when compared to the industry median at 3.30.

You can read more about Ebix 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.

WM Technology Inc’s Value Grade

Value Grade:

WM Technology, Inc. is a marketplace and technology solutions provider primarily servicing the cannabis industry, which includes consumers, retailers and brands in the United States and Canadian cannabis markets. The Company's business consists of its commerce-driven marketplace, Weedmaps, and monthly subscription software offering, WM Business. Weedmaps marketplace provides information on the cannabis plant and the industry and advocates for legalization. The Weedmaps marketplace provides consumers with information regarding cannabis retailers and brands, as well as the strain, pricing, and other information regarding locally available cannabis products, through its Website and mobile applications. WM Business is a set of e-commerce and compliance software solutions including WM Orders, WM Dispatch, WM Store, WM Dashboard, its integrations and application programming interface (API) platform, as well as access to its WM Retail and WM Exchange products.

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 64, which is considered to be undervalued.

WM Technology Inc’s price-to-book ratio is higher than its peers. This could make WM Technology Inc less attractive for value investors when compared to the industry median at 3.30.

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.

Xometry Inc’s Value Grade

Value Grade:

Xometry, Inc. is an artificial intelligence (AI)-enabled digital manufacturing marketplace. The Company enables buyers across industries to source an array of manufacturing processes to meet their needs. The Company’s platform is powered by machine learning algorithms and a dataset, resulting in a sophisticated marketplace for manufacturing. The buyers can procure the products they want on demand and sellers can source new manufacturing opportunities that match their specific processes and capacity. The buyers can upload an engineering schematic on its platform, which contains three-dimensional design specifications. Then, the Company prices the transactions through its AI-enabled instant quoting engine based on factors, such as volume, manufacturing process, material and location. The Company's buyers include engineers, product designers, procurement and supply chain personnel, inventors and business owners from businesses of a variety of sizes, ranging from self-funded start-ups.

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.

Xometry Inc has a Value Score of 67, which is considered to be undervalued.

Xometry Inc’s price-to-book ratio is higher than its peers. This could make Xometry Inc less attractive for value investors when compared to the industry median at 3.30.

You can read more about Xometry 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 4 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.

• AGM Group Holdings Inc stock has a Value Grade of A.
• Ebix Inc stock has a Value Grade of A.
• WM Technology Inc stock has a Value Grade of B.
• Xometry Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 4 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.

• 4 Undervalued Software Stocks for Friday, March 24
• Is Ohmyhome Ltd (OMH) Stock a Good Investment?
• 4 Undervalued Software Stocks for Thursday, March 23
• Why C3.ai Inc’s (AI) Stock Is Up 9.41%

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.