Stay Away from These 3 Popular Software Stocks That are Overvalued

Whereas the software program trade’s prospects look shiny due to distant existence and digital transformation, given present market volatility and fierce competitors within the trade, we consider it’s prudent to keep away from Coupa Software program (COUP), Confluent Inc. (CFLT), and Ceridian HCM Holding (CDAY). Put merely, these shares look overvalued at their present value ranges. Learn on.

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As a result of speedy digitization and distant existence, the software program trade’s robust progress prospects have sparked fierce competitors amongst present and new trade entrants. Additional, traders’ optimism in regards to the trade’s continued progress has propelled many software program shares to excessive valuations that aren’t justified by their present or anticipated financials.

Following a seven-month successful streak, fairness markets are down to date in September. Inventory indexes ended flat on Wednesday, giving up Tuesday positive factors on better-than-expected inflation knowledge. Whereas a number of fiscal stimulus packages and the Fed’s dovish financial coverage stance have been driving the financial restoration, issues over the resurgence of COVID-19 instances and rising Treasury yields may trigger  traders to drop overvalued tech shares.

We predict weak fundamentals and poor earnings progress potential may trigger overvalued software program shares Coupa Software program Included (COUP), Confluent Inc. (CFLT), and Ceridian HCM Holding Inc. (CDAY) to undergo a downturn within the close to time period. So,  they’re finest prevented now.

Click on right here to take a look at our Software program Trade Report for 2021

Coupa Software program Included (COUP)

COUP provides a cloud-based enterprise spend administration platform. Its platform connects companies with suppliers worldwide, giving them perception and management over spending cash, bettering provide chains, and managing liquidity. It serves corporations in varied industries, together with healthcare and prescription drugs, retail, monetary companies, manufacturing, and expertise. COUP is predicated in San Mateo, Calif.

COUP’s working loss elevated 70.1% year-over-year to $54.30 million within the second quarter, ended July 31, 2021. The corporate’s web loss grew 101.2% from its  year-ago worth to $54.30 million, whereas its loss per share surged 93.8% from the prior-year quarter to $1.24.

A $0.27  consensus EPS estimate for the present yr represents a 64.9% decline year-over-year. The inventory has declined 28.6% in value year-to-date and 14.2% over the previous six months.

By way of ahead Worth/Gross sales, COUP is at the moment buying and selling at 25.49x, which is 520.4% larger than the 4.11x trade common. Additionally, when it comes to its ahead EV/Gross sales, the inventory is at the moment buying and selling at 27.02x, which is 551.2% larger than the 4.15x trade common.

COUP’s POWR rankings are according to this bleak outlook. The corporate has an general D score, which interprets to Promote in our proprietary score system. The POWR Scores are calculated by contemplating 118 various factors, with every issue weighted to an optimum diploma.

COUP is rated a D grade for High quality, Stability, and Worth. Moreover, throughout the D-rated Software program – Enterprise trade, it’s ranked #52 of 60 shares.

To see extra POWR Scores for Progress, Sentiment, and Momentum for COUP, click on right here.

Confluent Inc. (CFLT)

CFLT is a cloud-native platform for data-in-motion that allows organizations in the US and overseas to attach their functions round real-time streams. The Mountain View, Calif.-based firm provides Apache Kafka, a group distributed occasion streaming platform. As well as, it  gives skilled companies and instruments for Confluent prospects to assist in streaming platform adoption, and coaching and certification packages for Confluent training.

For the second quarter, ended June 30, 2021, CFLT’s non-GAAP working loss elevated 16.4% year-over-year to $36.8 million. Its non-GAAP loss per share grew 63.2% from its  year-ago worth to $0.31. The corporate’s web money utilized in working actions surged 100.9% from the prior-year quarter to $43.2 million. Its  EPS is anticipated to say no at 6.8% each year for the subsequent 5 years.

At the moment, CFLT appears extremely overvalued. By way of ahead Worth/Ebook, CFLT’s 16.22x is 157.3% larger than the 6.30x trade common. As well as, its 45.49x ahead EV/Gross sales  is 996.4% larger than the 4.15x trade common.

CFLT’s weak fundamentals are mirrored in its POWR rankings. The inventory has an general D score, which equates to Promote in our POWR Scores system. The inventory additionally has a D grade for Worth, Progress, and Stability. Within the D-rated Software program – Software trade, it’s ranked #123 of the 147 shares.

Along with the POWR Scores grades we’ve simply highlighted, one  can see the CFLT score for Momentum, High quality, and Sentiment right here.

Ceridian HCM Holding Inc. (CDAY)

CDAY is a  human capital administration software program firm in the US, Canada, and globally. The corporate provides Dayforce, a cloud HCM platform with HR, payroll, advantages, workforce administration, and expertise administration capabilities, and Powerpay, a cloud HR and payroll resolution for small companies. CDY is predicated in Minneapolis, Minn.

Through the second quarter ended June 30, 2021, CDAY’s working loss was  $19.7 million, versus a $4 million working revenue within the prior-year interval. The corporate reported a $25.8 million web loss, versus web earnings of $5.5 million within the second quarter of 2020. Its loss per share amounted to $0.17, in comparison with an EPS of $0.04 in the identical quarter final yr. Analysts anticipate its EPS to say no 50% year-over-year to $0.25 in fiscal 2021.

By way of ahead Worth/Ebook, CDAY’s 7.64x is 21.1% larger than the 6.3x trade common. As well as, its 15.81 ahead Worth/Gross sales  is 284.8% larger than the 4.11x trade common.

CDAY’s poor prospects are additionally obvious in its POWR Scores. The inventory has an general D score, which equates to Promote in our proprietary score system.

It additionally has an F grade for High quality, and a D for Worth. CDAY is ranked #110 of 147 shares within the Software program – Software trade.

Click on right here to see the extra POWR Scores for CDAY (Progress, Stability, Sentiment, and Momentum).

Click on right here to take a look at our Cloud Computing Trade Report for 2021


COUP shares rose $0.87 (+0.36%) in premarket buying and selling Thursday. Yr-to-date, COUP has declined -28.64%, versus a 20.48% rise within the benchmark S&P 500 index throughout the identical interval.


Concerning the Writer: Pragya Pandey

Pragya is an fairness analysis analyst and monetary journalist with a ardour for investing. In school she majored in finance and is at the moment pursuing the CFA program and is a Stage II candidate.

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