Global digitalization is driving unprecedented growth in the software industry. Innovations and technological advancements are pushing the industry to new heights, enhancing efficiency and security. This surge in technological progress is propelling the software sector to achieve its highest levels of success yet.

Amid this backdrop, investing in fundamentally robust software stocks, F5, Inc. (FFIV), Clear Secure, Inc. (YOU), and RingCentral, Inc. (RNG) could be advantageous. Before diving into the stocks, let's first get a better understanding of the industry's growth drivers.

Businesses are increasingly relying on software to optimize operations and enhance customer experiences, which is driving significant sector growth. Innovations in Artificial Intelligence (AI), cloud computing, and Enterprise Resource Planning (ERP) are in high demand as companies strive to remain competitive in the constantly evolving digital landscape.

Such technological advancements have, in turn, driven the growth of the Software as a Service (SaaS) market, with solutions evolving quickly to enhance operational efficiency and business intelligence. Moreover, the rapid spread of COVID-19 led companies to adopt remote work policies, further increasing the demand for various SaaS solutions.

According to a report by Fortune Business Insights, the global SaaS market is expected to grow at a CAGR of 18.4% to reach $1.22 trillion by 2032. Moreover, Gartner, Inc. (IT) predicts that global software spending will increase by 12.6% year-over-year, totaling $1.10 trillion for the year.

Given these trends, let's explore the fundamentals of top three software stocks trading at a discount. Let’s start with #3.

Stock #3: F5, Inc. (FFIV)

FFIV is a multi-cloud application services and security firm that partners with organizations to secure and optimize app and Application Programming Interface (API) interfaces. Its enterprise-grade solutions use artificial intelligence and machine learning to support performance and protect legacy and modern applications and APIs.

On May 2, FFIV announced its partnership with Portkey.ai, a leading AI gateway and observability solutions provider. The collaboration seeks to revolutionize Large Language Model (LLM) application deployment, administration, and monitoring.

This could drive innovation and empower organizations across industries to harness the power of large language models, which would boost FFIV’s offerings and consumer numbers and, in turn, boost the company's growth.

On April 30, FFIV announced new best-in-class security offerings: F5 Distributed Cloud Services Web Application Scanning, BIG-IP Next Web Application Firewall (WAF), and NGINX App Protect for open source deployments, which strengthen protections and simplify customer management.

These new offerings could enhance protection and simplify customer management, solidifying F5’s position as a leader in AI-ready app and API security.

For the fiscal 2024 third quarter, which ended on June 30, 2024, FFIV’s income from operations increased by 57.5% year-over-year to $163.09 million. The company’s non-GAAP net income and non-GAAP net income per share stood at $198.84 million and $3.36 per share, up 2.7% and 4.7% from the prior year quarter, respectively.

Furthermore, as of June 30, 2024, the company’s cash and cash equivalents stood at $934.81 million compared to $797.16 million as of September 30, 2023.

FFIV is currently trading at a discount. Its forward non-GAAP P/E is 14.55x, 36.4% lower than the industry average of 22.90x. Its forward EV/EBITDA of 9.94x is 29.1% lower than the industry average of 14.02x. Moreover, the stock’s forward Price/Book of 3.58x is 10.5% lower than the 4.00x sector average.

Analysts expect FFIV’s revenue for the fiscal year ending September 2025 to increase 4.1% year-over-year to $2.91 billion. Its EPS for the next fiscal year is expected to grow 7.5% from the prior year to $14.13. Furthermore, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.

FFIV’s stock has gained 11.3% over the past three months and 16.4% over the past nine months, closing the last trading session at $191.36.

FFIV’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

FFIV has an A grade for Quality and a B for Value. In the B-rated Software – Business industry, FFIV is ranked #5 among 39 stocks.

To access additional ratings for FFIV’s Growth, Momentum, Stability, and Sentiment, click here.

Stock #2: Clear Secure, Inc. (YOU)

YOU operates a secure identity platform under the CLEAR brand, featuring a multi-layered infrastructure for enrollment, verification, and identity linking. It offers the CLEAR Plus aviation subscription service and CLEAR mobile app for member enrollment and experience enhancement, ensuring robust front-end and back-end security.

On July 23, YOU opened six new locations to enroll and renew consumers in its Trusted Traveler program. There are now 46 TSA PreCheck enrollment locations open across the United States.

The expansion is an important step in the company’s mission to serve its customers with a fast and efficient airport experience.

On July 17, YOU launched its signature identity verification technology at Honolulu’s Daniel K. Inouye International Airport (HNL) to streamline its security screening experience.

The launch marks a significant step in YOU’s expansion. With its opt-in CLEAR Plus membership, YOU now serves 58 airports nationwide and has over 22 million members.

YOU’s revenue increased 24.6% year-over-year to $186.75 million in the fiscal 2024 second quarter that ended June 30, 2024. Its operating income was $30.34 million, significantly increasing from $217 thousand in the previous year’s quarter. The company’s adjusted EBITDA stood at $47.45 million, up 137.1% year-over-year.

In addition, YOU’s adjusted net income was $49.27 million or $0.34 per share, increasing 116% and 126.7% year over year, respectively.

YOU’s forward non-GAAP P/E of 21.46x is 6.3% lower than the industry average of 22.90x. Its forward EV/EBITDA multiple of 11.56 is 17.6% lower than the industry average of 14.02x. Plus, the stock’s forward Price/Cash Flow of 8.95x is 51.6% lower than the 18.47x sector average.

Analysts expect YOU’s revenue for the fiscal third quarter (ending September 2024) to grow 21.3% year-over-year to $194.62 million. Its EPS is expected to rise 57% from last year’s period to $0.33. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Shares of YOU have surged 40.6% over the past month and 53.3% over the last three months to close the last trading session at $27.29.

YOU’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

YOU has a B grade for Growth, Value, and Quality. It is ranked #5 out of 23 stocks in the B-rated Software – Security industry.

In addition to the POWR Ratings highlighted above, one can access YOU’s ratings (Momentum, Stability, and Sentiment) here.

Stock #1: RingCentral, Inc. (RNG)

RNG provides AI-driven cloud business communications, contact center, video, and hybrid event solutions. The company’s product lineup features RingCentral MVP, Contact Center as a Service (CCaaS), RingCentral Video, RingCentral Events, RingSense, and more.

On August 8, the company announced its partnership with Coupa, a margin multiplier firm to help optimize RNG’s spend and business operations. The alliance could help RNG to leverage Coupa's platform to control risk, improve governance over cash management and spend, and use AI to automate and drive smarter business decisions and take the business to higher levels eventually increasing its growth prospects.

RNG’s total revenues for the fiscal 2024 second quarter ended June 30, 2024, grew 9.9% year-over-year to $592.91 million. Its non-GAAP income from operations rose 18.9% over the prior-year quarter to $124.19 million.

The company’s non-GAAP net income and non-GAAP net income per share were $86.20 million and $0.91, respectively, up 7.7% and 9.6% year-over-year.

RNG is also trading at a cheaper valuation than its peers. Its forward non-GAAP P/E of 9.05x is 60.5% lower than the industry average of 22.90x. The stock’s forward EV/EBITDA multiple of 7.72 is 45% lower than the industry average of 14.02x. Also, the RNG’s forward Price/Sales of 1.27x is 54.2% lower than the 2.77x industry average.

The consensus revenue and EPS estimate of $602.17 million and $0.92 reflect a 7.9% and 18.2% year-over-year increase for the fiscal third quarter ending September 2024, respectively. In addition, the company topped the consensus revenue and EPS estimates in each of the trailing four quarters.

Shares of RNG have surged 7.7% over the past month and 19% over the past nine months to close the last trading session at $33.12.

RNG’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

RNG has an A grade for Growth and Value and a B for Quality. It is ranked #6 out of 39 stocks in the Software – Business industry.

Beyond what is stated above, we’ve also rated RNG for Stability, Sentiment, and Momentum. Get all RNG ratings here.

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FFIV shares were unchanged in premarket trading Thursday. Year-to-date, FFIV has gained 6.92%, versus a 15.12% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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