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 Monday, May 15, 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 96, which is considered to be undervalued.

When you look at AGM Group Holdings Inc’s price-to-sales ratio at 0.27 compared to the industry median at 3.45, 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 2.17 compared to the industry median at 40.04. 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 21.8, 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 (1.90%). 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 3.39. This could make AGM Group Holdings Inc more attractive to investors looking for a new addition to their portfolio.

BSQUARE Corporation’s Value Grade

Value Grade:

Bsquare Corporation develops and deploys technologies for the makers and operators of connected devices. The Company?s segments include Partner Solutions and Edge to Cloud. It specializes in device operating system (OS) image development and configuration, device software development and testing. It offers a suite of software, tools, and services to its customers that are packaged based on technical and business requirements, such as embedded OS and system software sales and support, OS configuration services, device management solutions, and Internet of things (IoT) and fleet transition services. Its embedded OS and system software sales and support provide license compliance services, technical support, and manufacturing support. Its OS configuration services offers a suite of services to help customers specify and configure the OS software (Windows IoT, Linux, and Android) for their device based on their hardware configuration, application software, and security policies.

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.

BSQUARE Corporation has a Value Score of 85, which is considered to be undervalued.

BSQUARE Corporation’s price-to-book ratio is higher than its peers. This could make BSQUARE Corporation less attractive for value investors when compared to the industry median at 3.39.

You can read more about BSQUARE 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.

Consensus Cloud Solutions Inc’s Value Grade

Value Grade:

Consensus Cloud Solutions, Inc. is a provider of secure information delivery services with a scalable Software-as-a-Service platform. Its communication and digital signature solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries. Its products and solutions include eFax Corporate, Unite, jSign, Conductor, Clarity and eFax. eFax Corporate provides digital cloud fax technology. Unite is a single platform that allows the user to choose between several protocols to send and receive healthcare information in an environment. jSign provides electronic signature and digital signature solutions to businesses. Clarity is engaged in using natural language processing and artificial intelligence information. eFax is an online faxing service for customers. In addition to eFax, it offers a variety of brands for subscription. 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 65, which is considered to be undervalued.

Consensus Cloud Solutions Inc’s price-earnings ratio is 9.4 compared to the industry median at 40.0. This means that it has a lower price relative to its earnings compared to its peers. This makes Consensus Cloud Solutions Inc more attractive for value investors.

You can read more about Consensus Cloud 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.

Telos Corp’s Value Grade

Value Grade:

Telos Corporation is a provider of cyber, cloud and enterprise security solutions. Its segments include Security Solutions and Secure Networks. The Security Solutions segment provides cybersecurity, cloud and identity solutions, and secure messaging through Xacta, Telos Ghost, Telos Advanced Cyber Analytics, Telos AMHS and Telos ID offerings. The Secure Networks segment provides secure networking architectures and solutions to its customers through secure mobility solutions, and network management and defense services. The Secure Networks segment capabilities include network design, operations, and sustainment; system integration and engineering; network security and compliance; deployable comms; robotic process automation and other digital transformation capabilities; service desk; defensive cyber operations; and program management. Its customer base consists of the United States federal government, large commercial businesses, state and local governments, and international customers.

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.

Telos Corp has a Value Score of 69, which is considered to be undervalued.

Telos Corp’s price-to-book ratio is higher than its peers. This could make Telos Corp less attractive for value investors when compared to the industry median at 3.39.

You can read more about Telos Corp’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.
• BSQUARE Corporation stock has a Value Grade of A.
• Consensus Cloud Solutions Inc stock has a Value Grade of B.
• Telos Corp 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 Monday, May 15
• 4 Undervalued Software Stocks for Friday, May 12
• Which Is a Better Investment, Ceridian HCM Holding Inc or Descartes Systems Group Inc (USA) Stock?
• Why BILL Holdings Inc’s (BILL) Stock Is Down 5.85%

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.