Software Stocks Just Flipped - Top 5 to Buy Now

The stock market just flipped. We are seeing a significant rebound in software stocks. Wix is up 11% today. Workday is up 10.7%. Shopify is up 10%. Hubspot's up 9.1%. Service Now is up 8.3%. Salesforce is up 7%. Adobee's up 7%. Palanteer's up 7%. Constellation Software is up 6.6%. Asensor is up 5.8%. And even big tech giants like Microsoft are up 3%. These are the exact same software stocks that have been hammered in the earlier part of the year and some are still down 60% from their 52- week high. But this is only half the story. AI related hardware stocks are selling off massively on the day. SanDisk is down 12%. AMD is down 6.3. Cerebras is down 6.3. ASML is down 6. Nvidia is down 4.5%. So money is moving out of the AI hardware spend and moving into software. And this is a flip of what's been going on for most of the past year. But the reality is that most of these software stocks are still insanely beaten down. And they are trading at historically low valuations. Here's the part that almost nobody is saying out loud. While these companies saw their stock prices cut in half, their businesses in terms of their financials have not gotten any worse. Revenue has kept growing. Free cash flow is setting record highs. Earnings have continued growing. And this is true of most of these software companies. So while there has been the software selloff and the narrative around how weak and potentially at risk to disruption some of these software companies are with all the advancements happening in AI. They have proven to be durable so far. There are no real signs of these businesses declining. And if you think that's going to happen for the years and decades to come, then this could be a historic buying opportunity for most of these beaten down software stocks. So today I'm going to show you five of the highest quality software stocks in the market that are still trading like they might go out of business or at least stop growing entirely and start declining. For each, I'll show you the massive gap between the historical multiple that these companies have traded at based on their earnings and core financials compared to where the price is today. And for the long-term investor, that gap could be a massive opportunity. With that said, let's roll the intro and get into today's video. >> [music] [music] [music] >> The following reflects the opinion. opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. Continue at your own risk. My name is Zach. This is Dividend Data, and you should leave a like and subscribe to the channel if you enjoy the video. Throughout, I'm going to be using the next generation version of our stock research tool, dividend.com, which just launched last week. The early feedback has been amazing and I want to thank all of the users who have been pouring out support over the past week. And to celebrate the launch, we're doing a founding member deal where you can get 50% off annual membership. And if the tool helps you find just one better stock, then it way more than pays for itself. The link is in the description and pin comment of the video. So, software stocks are finally getting some love in the market. And today, I'm going to give you my top five. But for those of you who follow the channel, you know that two of the bigger names I own are Microsoft, which is up 2.65% on the day, and Google, which is up 2.4%. And I will not be covering either of these in this video. Instead, I'm going to focus on the pure software only businesses. I covered Google in a video last week after they sold off following their earnings report. And this week, Microsoft is going to be reporting earnings. So, I will be covering Microsoft later in the week. So, look forward to that. Click subscribe if you want to make sure you see my Microsoft analysis. I'll also be covering quite a few other companies after earnings, whether it's Meta, Visa, Apple, Amazon. Let me know in the comments what you would like to see me cover. Also, if you want to get all of the top stocks reporting earnings this week and dividend paying companies with the upcoming X dividend dates and payment dates for the week, this is all available at dividendata.com. Also, I have a newsletter that goes out every single week. I've been doing it for over a year and a half at this point. Goes out every single Monday morning. I include some of the research I did over the week, plus share notable stocks reporting earnings, dividend payments coming up, and companies that have just raised their dividend payment over the past week. And you can get all this when you head over and become a free member of dividenda.com. Scan the QR code in the corner, and it'll take you right over to dividenda.com. Then you can follow along with me as I do my research. Stock number one I'm going to be covering today is Inuit, ticker symbol INTU. This is a software conglomerate. They own many top softwares across different categories. That includes Turboax, Credit Karma, QuickBooks, and Mailchimp. And over the past 5 years, Into It stock is down 41.7%. And a lot of this has happened over the past year where it's still down 61.84%. It's down massively from its all-time high. Into it, it's a very high quality profitable business. And unlike some of the options I'll be sharing today, it's a dividend growth stock. They have been growing their dividend payment every single year. Over the past 10 years, it's a 14.87% compound annual growth rate. The most recent dividend increase was 15.3%. And right now, we're in historic deep value territory in terms of optimizing your dividend yield on cost for in it. It's in the 97th percentile right now with its 1.62% dividend yield. And that's only because it was slightly cheaper a couple weeks ago. But it's still in historically cheap territory. If we look at it over the past 9 years, it's in the 99th percentile. And this company, all the core metrics that continue to improve over the past 5 years, it's up 138% which is a 20.14% compound annual growth rate. And the P ratio based on the trailing 12 months earnings is 18.48, which is historically cheap. We're in the bottom third percentile. This is a company that over the past 5 years, the median multiple was 59. These software stocks, they used to sell at a premium. That's what's so interesting about it. The software as a service business model got a premium valuation because of the reliable subscription revenue that was growing over time. But now with potential risk around AI disruption and the idea of how much easier it has gotten to create highquality software, the thoughts are there may be competitive pressure. But the reality is that some of these software companies, their moat is the distribution, their large customer base and their large enterprise contracts. And this applies to all of them, not just into it. And these companies have large teams of software engineers which are getting increasingly more productive. So they can likely improve their products and have greater product velocity than they could previously. So it definitely remains to be seen over the long term whether that risk is even real. There's no doubt though that there's definitely change. There's a lot of change. The market hates change, which is why all these software stocks are selling off. And now into it trades at a historically cheap valuation. The forward-looking P ratio right now is 12.7. This is crazy to think about in hindsight. The median forward-looking P ratio over the past 5 years was 35. If they go back to that 35 multiple, the implied share price is $834, which is 172% above what it is today. And to its topline revenue is growing. 5-year growth of 117% that's 17.75% compound annual growth rate. The free cash flow is growing $7.7 billion over the trailing 12 months. That's up 26% year-over-year. And over the past five years, it's 20.97% keer. And as you can see, this company has been generating more and more cash flow over time. And they're at all-time highs right now. And part of the thing that's so great about this software business model is that compared to a lot of other industries, they have limited capex. So these companies once they hit scale and are profitable, they generate tons of free cash flow. You can see their capex is only $170 million over the trailing 12 months. So their operating cash flow and free cash flow are very similar. So when you look at a stock like into it, expectations are for continued high earnings per share growth. And also expecting 10% EPS growth. And if they hit this 2030 estimate of $4043 in earnings per share, that would imply a 7.6 6p ratio based on today's stock price and the company is growing. So even if they stay at this 12.8 P ratio, you'd still have potentially 70% upside from here, that would be 14.1% annual growth. So that's why some of these software stocks people are finally buying them. They're too cheap to ignore if they don't decline, let alone if they continue to grow. And what if they get rerated closer to their historic multiples? Let's say 25. If that's the case, by 2030, INT could be trading at a 1,000 share price. That'd be a 231% upside from here, 34.8% annually. And no matter what financial metric you're looking at for Into It, it's trading way below the historic multiples. So right here, we're looking at trailing 12 months earnings per share GAP accounting. And again, the median multiple over the past 5 years has been 59.37. That would imply a fair value of $977 if it was trading at that multiple. That's gap accounting, though. There are some better metrics for into it. And again, we can just look here. If they just get rerated to a 25p ratio, then at today's level, that would give them an implied value of $412. That's 35% upside from here. If we look at into it based on its dividend, the median multiple has been 0.62%. So, a 0.6 dividend yield. If it goes back to that, that would imply the value of $774. That's 153% upside from here. And you can see it's way below that historic median multiple. We are in deep value territory. The same is true for free cash flow with into it stock. We are in deep value territory. Well below that median multiple of 32.17. And again, if they just get rerated to 20 times free cash flow, 83% upside from here. Same with operating cash flow. Deep value. If they get rerated to 20 times operating cash flow, huge upside. Stock number two that I'm going to share with you today is Service Now, ticker symbol NOW. This is a very large enterprise software company. They are up 7.07% today, and they are still down 54% from their all-time high. This company is growing even faster than in it is. As you can see, their current revenue over the trailing 12 months is 14.7 billion, which is up 22.19% year-over-year. Over the past 5 years, their revenue has grown 166%. That's a 22.9% kegger. And as we zoom out, the growth here is just crazy at service now. Their sales operation must be fantastic. And this is why in the past software stocks traded at fantastic multiples cuz look how reliable and consistent their revenue growth is. These companies did deserve to trade at a premium, but now people are worried about their future. So your question as you're sitting here watching this video is whether these companies will be around and software as a service as a business model will be comparable 5 to 10 years from now. And if you think that's the case, a lot of these look like great buys. Service Now is starting to generate a lot of free cash flow as well. At $4.5 billion over the trailing 12 months, that's up 19% year-over-year. And you can see it's right around all-time highs. And over the past 5 years, free cash flow per share has grown at 24.8% keger. And again, these software companies typically have lighter capex compared to a lot of these AI crazy spendings. They're not participating in a lot of that. Although they are starting to have AI related tokens as an expense, but that wouldn't flow into the capex in general. This is a free cash flow generating business. As you can see here, we can look at the adjusted earnings per share or service. Now, it's hitting all-time highs over the trailing 12 months, $3.75 a share. That's 35% growth year-over-year. And over the past 5 years, earnings per share has grown 2,000% 86% compound annual growth rate. And on a forward-looking basis, analyst are expecting $4.7 for this full fiscal year. That would put it at a 26.1 forward-looking P ratio. And they're expecting continued growth from there. And now I'm going to show you what I call the value graph. It charts their core financials compared to the current stock price and lets you know the historical multiples over that time period selected. This is on that stock page I was showing earlier, but there's also a full custom tool that has all of that related information in one place. I bring this up to segue to the PE history for Service. Now, again, this company used to trade at a premium multiple, a 50p ratio. That's premium. The median over the past 5 years is 39.4. So, they are well below that. They are trading at a 34% discount to their implied fair value if they were trading at that 39.5p ratio. That would give the stock 52% upside from here. And they're looking even cheaper based on their historic free cash flow multiple. They've implied 112% upside from here if they go back to that 50.6 price to free cash flow ratio. That's pretty high, but I do think it's pretty realistic with their growth. They could get back to a 35 price to free cash flow ratio and that would imply 47% upside from here. And the thing you have to remember is that this company is growing. So that's just talking about at today's state the underlying business that fair value is growing every year. So service now it's looking cheap. If we look at its price to sales, so it's revenue. This is how a lot of early stage and private SAS companies they're usually valued on their price to sales ratio because a lot of venture capital based startups they don't necessarily have earnings and free cash flow. If we look at the price to sales historically a cheap multiple right now the median is 15.51 is currently 51% below that. If we look over the past 5 years and over 10 years, this shows that it's one of the best times that you could have bought Service Now stock in terms of valuation, if it goes back to a 15.5 price to sales ratio, implied value of $221 at today's current revenue, that would be 109% upside from here. And again, this tool, it's all available in the value graph tool over at dividenda.com. You can see all of these different metrics, the full history, control whatever price period you want, and you can also get the full history of the metric with the daily multiple showing you the 90th percentile, the 10th percentile, the median. It's pretty awesome. The third stock I'm going to share today is Salesforce, ticker symbol CRM. They are up 6% on the day. They're down 28% over the past 5 years, and they're still down about 40% from their all-time high. They are a large diversified enterprise software company and they actually are starting to get very diversified. They own tons of different businesses. A lot of it has to do with sales and services and basically internal business software that help you run your business. The product they own that most of you are probably familiar with is Slack. This is used for a lot of internal company communication. And despite the stock price not doing well, the business is doing better than ever. Revenue is up 81% over the past 5 years. That's a 13.4% 4% compound annual growth rate. So the growth is slightly less than that service now example I showed earlier. However, the company is much larger. It's even more profitable and it's trading at cheaper multiples. So revenue for Salesforce over the trailing 12 months, 42.8 billion. That's crazy. That's 10.9% growth year-over-year. And here you can see the chart for Salesforce's revenue over time. Consistent, reliable growth. And again, this is why software stocks traded at that premium. Software is a high gross margin business. They have 77% gross margins. Salesforce's free cash flow over the trial months is 14.6 billion, up 15.9% year-over-year. Their free cash flow has grown 168% at a 23% kegger over the past 5 years. And again, operating cash flow is very close to that because this is a capex light business. So these software companies, they generate tons of free cash flow. And Salesforce is interesting because they're starting to pay dividends with it and they are repurchasing stock now and have announced even larger repurchase programs currently underway. In fact, if we just look over the trailing 12 months of companies returning the most cash to shareholders, so dividends and buybacks. Salesforce is seventh overall in the global stock market, $ 38 billion over the coming 12 months. And they're going to be moving up that list. That number is going up. So, as I mentioned, Salesforce is starting to pay a dividend, 1.08%. 08% forward-looking dividend yield from here. 1.08% forward-looking dividend yield at the current price. And they haven't paid a dividend that long, but they are near the highest dividend yield on cost. If we take a look at the earnings for Salesforce, their earnings per share over the trailing 12 months is 13.85. That's up 34% year-over-year. Over the past 5 years, they've grown their earnings per share at a 21.5% compound annual growth rate. And over the past 10 years, it's grown 1,473%. That's a 32% kegger. And fiscal year 2027, analysts are projecting $14.15 in earnings per share. That's 20% growth, which would mean that Salesforce today is trading at a forward P ratio of 12. It's as cheap or cheaper than some cigarette companies. Think about that for a second. Heading back to the value graph, pretty much every metric for Salesforce is historically cheap right now. If we look at the forward-looking P ratio over time, the median over the past 5 years is 30.3. It's currently trading at 12.26 P ratio. And if they were to go back to that 30.3 median P ratio, that would imply a fair value of 428, that is 147% upside from here. If we're valuing Salesforce based on its free cash flow generated, median multiple over the past 5 years is 26.71. Again, we're on the historically cheap side. We're currently at a 10 price to free cash flow ratio. So, the company is trading 61% below the implied free cash flow fair value multiple. Even if it just goes up to a 19 price to free cash flow ratio, that would imply Salesforce's share price of $320. 84% upside from here. And again, this is a business which is growing their free cash flow. So, this is really your margin of safety. The actual fair value is growing every year as the business grows. And again, if they go to that 26.7 median free cash flow multiple, which is not impossible. Again, that's the median implied value would be $450. That's a 159% upside from here. And if we're looking at the analyst projections in earnings per share for Salesforce stock going all the way through 2031, the fiscal 2031 annual EPS estimate is $25.18. That implies a forward P ratio of 6.9 from today's price. So even in a scenario where the P ratio doesn't even change for Salesforce stock, it stays at 12.3, that would imply the 2031 share price is $39. That's 78.5% up from here. 13.7% annually. If they go back up to trading at a 25p ratio, which that's what like Coca-Cola and Proctor and Gamble are trading at, I'd argue they're a little overvalued trading at a premium. But if Salesforce goes back up to that, they'd be trading at $629 in 2031. That's 262% upside from here. 33% annual returns. Stock number four I'm going to share today is Adobe, ticker symbol ADB. And this is a software company. It's up 5.62% today. They have been beaten down for a while. And they're looking dirt cheap, at least based on the financials. They are still down 65% from their all-time high and they were cheap a year ago and they're down 35.6% from that price. If you don't know Adobe, they have their Creative Cloud. It's a bunch of softwares related to making creative things, whether it's Photoshop or Adobe Premiere for video editing. Lots of different ones. They're used a lot in enterprises and creative industries. I pay for Adobe Creative Cloud. People that are in like Hollywood and the film industry, they'll pay for it. people in marketing departments, they'll pay for it. Adobe's revenue over the trailing 12 months, $25.2 billion, up 11.49% year-over-year. That's 66.8% revenue growth over the past 5 years. That's an 11.4% compound annual growth rate. So, the company has continued growing even as the stock price has plummeted. Adobe is starting to generate a ton of free cash flow, 10.6 billion. That's up 12.61% year-over-year. This is the trailing 12 months of free cash flow. And for context, look at the current market cap. $94.5 billion. So it's trading at 9.4 times free cash flow. And in the long run, Adobe has been a free cash flow machine. Rapid growth. And even I'll go back to revenue here for a second to give you the all time. This has been consistent, reliable revenue growth. Adobe is an older software company. So you've seen this shift also at Microsoft, which was an older software company at one point. Around 10 15 years ago, they started shifting to a cloud-based model that allowed it to be a subscription product. Previously, you would buy Adobe products and it' be all a cart. You know, you would go buy the disc at the store and put it in your PC or you'd pay for a license online. But the switch to a subscription model has made these companies a killing. And you can see the rapid growth over the past 10 years. 16.81% compound annual growth rate. And it really started that transition back in 2015. And that's when everything exploded at some of these software companies. The growth was outrageous. And again, Adobe is a capital light business. So nearly all their operating cash flow is free cash flow. They do not pay a dividend. But they do repurchase shares 11.8 billion over the trailing 12 months. So they are returning some of that capital to shareholders. And you could say that's something they should do because of the market is so cheap. And they definitely have a good argument to do that because their stock is so cheap right now. But if I were them, I'd probably consider trying to make some acquisitions again. Now, ironically, a few years ago, they tried to buy Figma and that got blocked. And if we look at Figma, it's down 80% from its IPO last July. So maybe he run that back. Overall, analysts are expecting continued earnings per share growth at Adobe, 10% plus annually. Forward-looking P ratio at today's price is 9.7. This is way below the historic multiple if Adobe continues growing at this rate with analyst projections. Even if they don't get rerated at all, the share price in 2030, it should be 42% higher from here, 8.4% annual returns. And that's simply because the business will continue growing, even if they don't get rerated back to historic multiples. If we take a look at the value graph for Adobe, we can see here on the earnings per share version, the company dirt cheap. Here you can see the P ratio history over the past five years. The median multiple over that time is 28.8. Again, Adobe, it used to trade at a premium. This was a 40 to 50p ratio stock. And even after spending years at a lower valuation, the median is still 28.8. So right now, the company's trading 66% below that implied fair value. And that fair value is just taking that 28.8 P ratio times the earnings per share. And you can see here if we go to that median, that would give it an implied fair value of $72. 195% upside from here. But maybe it doesn't even ever get back to that. What if it just gets to a 15p ratio? People realize the company's not dying or disappearing. If that's the case and it gets rerated upward a little bit, implied value $366, 54% upside from here. Now, the problem with this and most of these stocks is that they've looked cheap for a while. And over the short term, the market really decides what these companies are being valued at. And these companies are being valued as though 5 years from now, they're going to be a shadow of their former selves and on the decline. Most of them, they're still growing. No signs of decline, but they are being priced like they are going to stagnate very quickly and then drop off. If we look at the free cash flow chart here for Adobe, you can see it's trading well below its historic fair value. The median multiple over the past 5 years is 26.9. And if we look at it all time, it's the lowest pretty much ever right now. Last time it was this cheap was in the great financial crisis in 2009. And this was when they were in that alle cart software phase. Not even a subscription business model. So you can see just the price to fair value here over the time. This could be a very good sign if you're a buyer of Adobe. But again, there's that problem where it's looked cheap for a while. It's looked cheap for years now. It's looked cheap for like a year and a half. If they go to a 15 price to free cash flow multiple, it would give it an implied value of $396, 66% upside from here. The final stock I'm going to share today is HubSpot, ticker symbol HubS. This is a customer relationship management software similar to part of Salesforce's core business. Although HubSpot is typically marketed more towards small and medium-sized companies compared to super large enterprises, HubSpot's up 8.84% today, but it's down 62% over the past 5 years and down 75% from its 2025 high. This is not a dividend paying company and it's a smaller business than many of the other examples I shared today. Market cap's $1.42 42 billion. Revenue over the trailing 12 months is $3.3 billion, which is up 21% year-over-year. Revenue has grown 178% over the past 5 years, 25.59% compound annual growth rate. And you can see they've had that reliable ramp of subscription recurring revenue. Software business 83.8% gross margins. Now, what's nice about HubSpot, 5 years ago, maybe 10 years ago, you could have argued they were on the overvalued side, especially as a public company, they weren't even free cash flow positive. They had a period in 2020 where they were free cash flow negative. But their core fundamentals of their business have improved a lot recently. $712 million of free cash flow over the 2012 months. That's up 16.93% year-over-year. And over the past 5 years, they've grown that free cash flow at 42.2% 2% compound annual growth rate. And again, this is another example of a company starting to do share repurchases because they're actually profitable and the stock is dirt cheap. Here you can see the earnings for HubSpot. Over the trailing 12 months, the company has $1066 in earnings per share. This is adjusted earnings per share. It's up 29.68% year-over-year. Over the past 5 years, they've grown adjusted EPS at a 52.79% kegger. So, it's up 650% in that time. Now, Gap EPS has been negative for a long time at HubSpot. I'd have to look into exactly why that is before I'd consider buying myself, but even on Gap EPS, it has turned a profit recently with $1.91 over the throwing 12 months. Perhaps it's stockbased compensation or acquisitions or something that they had to write down. I was correct, by the way. It was stockbased compensation. But overall, the business is generating lots of free cash flow. Again, these analyst estimates, they're based on the adjusted earnings per share, so the non-GAAP version of it, not including the stockbased compensation. In fiscal 2026, they're expecting $13.12 in annual earnings per share, which would be a forward P ratio of 17. And we're expecting double-digit EPS growth every year after that. So, if the company stays at that 17 forward-looking P ratio, by the time it got to 2030, it would imply 70% upside from here. That would be 12.9% annual growth. But this 17 ratio is below the historical median multiples for HubSpot. If that got to 30, you could see much higher upside from here. 201% upside, 28.3% annual growth. So let's take a look at that value graph tool again for HubSpot. So as we look at the free cash flow here on the value graph for Salesforce stock, the median multiple over the past 5 years is 83.5. That's definitely on the higher end. And you can see currently right now it's 16.43. So they're well below that median multiple. But even if we change to look at it over the past 3 years, it's still historically cheap. 64.4 median multiple. And if the company even gets rerated back up to a 25 price to free cash flow multiple, that would imply a value of $339, which is 52% upside from here. And this is a business that's consistently growing. So that fair value would be increasing as well. And if we just look on a price to salsales multiple, which might make more sense for HubSpot since it's a smaller business and in more recent history, they were in that period where they were being valued on price to sales. Current price to sales is 3.55. The median multiple over the past 3 years is 11.01. So they're 67% below that fair value. If they go back to 11, that would imply 209% upside from here. But even if they just go to a six price to sales ratio, 69% upside from here. But overall, a lot of these software stocks that were selling off down massive over the past year, year and a half, 2 years, they had a good day today and it could be a potential time where the market is looking at them and they're too cheap to ignore. Let me know in the comments whether you're buying any of these beaten down software stocks. And if you want to use the stock research tool I was showing throughout the video, it's all available at dividenda.com. We have a 50% off sale where you can lock in a discount on annual membership. And if the tool helps you find just one better stock, then it way more than pays for itself. The link is in the description and pin comment. Make sure to leave a like, comment, and subscribe because I'll have a lot of content in the coming week. See you in the next one.