In this article, we will take a look at the 5 high growth software stocks that are profitable. To see more such companies, go directly to 12 High Growth Software Stocks that are Profitable.
5. Dynatrace, Inc. (NYSE:DT)
Number of Hedge Fund Holders: 35
Software intelligence platform company Dynatrace, Inc. (NYSE:DT) ranks 5th in our list of the 12 high growth software stocks that are profitable. Dynatrace, Inc. (NYSE:DT) recently posted its fiscal third quarter results. Dynatrace, Inc. (NYSE:DT) said adjusted EPS in the quarter came in at $0.25, beating estimates by $0.04. Revenue in the quarter increased by 23.6% on a YoY basis to come in at $297.46 million, beating estimates by $12.71 million. Dynatrace, Inc. (NYSE:DT)’s subscription revenue in the period increased by 29% in the period on a constant currency basis. Operating income in the period was $34 million.
For the fiscal fourth quarter, Dynatrace, Inc. (NYSE:DT) expects revenue in between $304 million to $307 million, versus the consensus estimate of $291.90 million. Adjusted EPS in the period is expected to come in between $0.22 and $0.23, better than the consensus of $0.21
35 hedge funds reported having stakes in Dynatrace, Inc. (NYSE:DT) at the end of the third quarter of 2022, according to Insider Monkey’s proprietary database.
Polen Capital made the following comment about Dynatrace, Inc. (NYSE:DT) in its Q3 2022 investor letter:
“The most significant absolute detractors from the Portfolio’s performance over the quarter included Yeti, Goosehead Insurance, and Dynatrace, Inc. (NYSE:DT).
Finally, Dynatrace, a software provider of intelligence platform solutions that allow customers to modernize and automate IT operations, traded down in the quarter as the company provided cautious guidance given the uncertainty around the macro picture. We think this is reasonable considering the wider range of outcomes in this market environment, and the underlying results spoke to a company that continues to execute at a high level.”
4. WEX Inc. (NYSE:WEX)
Number of Hedge Fund Holders: 37
Payment solutions company WEX Inc. (NYSE:WEX) ranks 4th in our list of the high growth software stocks that are profitable. WEX Inc. (NYSE:WEX)’s revenue in the fourth quarter of 2022 jumped by about 24.3% on a YoY basis to come in at $618.6 million, beating estimates by $41.59 million. Adjusted EPS in the quarter was $3.44, beating estimates by $0.22.
In the first quarter of 2023, WEX Inc. (NYSE:WEX) is expecting to generate revenue in the range of $600 million to $610 million, versus the consensus estimate of $569.52 million. Adjusted net income in the period is expected to come in between $140 million to $145 million, or $3.15 to $3.25 per diluted share, while the consensus estimate for this figure is $3.20.
3. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Number of Hedge Fund Holders: 46
Computational software and hardware company Cadence Design Systems, Inc. (NASDAQ:CDNS) is in the spotlight after the company posted upbeat Q4 results earlier this month. Cadence Design Systems, Inc. (NASDAQ:CDNS)’s revenue during the fourth quarter of 2022 saw an increase of about 16.4% on a YoY basis to reach $899.88 million, beating estimates by $15.65 million.
Cadence Design Systems, Inc. (NASDAQ:CDNS)’s management expressed confidence in Cadence’s secular growth prospects stemming from AI, machine learning, 5G and hyperscale computing.
Hedge fund sentiment for Cadence Design Systems, Inc. (NASDAQ:CDNS) also ticked up in Q3 of 2022. At the end of the quarter, 46 hedge funds out of the 920 hedge funds tracked by Insider Monkey had stakes in Cadence Design Systems, Inc. (NASDAQ:CDNS), up from 39 hedge funds in the previous quarter. The most notable stakeholder of the company was Panayotis Takis Sparaggis’ Alkeon Capital Management which owns a $523.4 million stake in Cadence Design Systems, Inc. (NASDAQ:CDNS).
Renaissance Investment made the following comment about Cadence Design Systems, Inc. (NASDAQ:CDNS) in its Q3 2022 investor letter:
“Cadence Design Systems, Inc. (NASDAQ:CDNS) was another contributor. The company reported strong operating results with broad-based strength from its semiconductor customers who are migrating to next-generation manufacturing nodes. We believe the multi-year investment cycle for semiconductor design spending should drive sustainable double-digit growth well into next year.”
2. Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Holders: 67
Oracle Corporation (NASDAQ:ORCL) is one of the most notable Cloud and software stocks. In December, Oracle Corporation (NASDAQ:ORCL) posted its fiscal second quarter results. Adjusted EPS in the quarter came in at $1.21, beating estimates by $0.04. Revenue in the quarter jumped about 18.5% on a YoY basis to a total of $12.28 billion, beating estimates by $260 million. Oracle Corporation (NASDAQ:ORCL) said its Cloud revenue in the quarter jumped a whopping 48% (constant currency) on a YoY basis to total $3.8 billion.
In January, Oracle Corporation (NASDAQ:ORCL) jumped after Piper Sandler analyst Brent Bracelin upgraded the stock to Overweight, citing strengths in the Cloud market, which he now believes could reach $646 billion by 2025 and $1.4 trillion by 2030.
1. Intuit Inc. (NASDAQ:INTU)
Number of Hedge Fund Holders: 86
Business software company Intuit Inc. (NASDAQ:INTU) ranks 1st in our list of the 12 high growth software stocks that are profitable. In November Intuit Inc. (NASDAQ:INTU) posted its fiscal first quarter results. Revenue in the quarter increased by about 29.4% on a YoY basis to come in at $2.6 billion, beating estimates by $100 million. Adjusted EPS in the quarter was $1.66, beating estimates by $0.46. Intuit Inc. (NASDAQ:INTU) said that for full-year 2020 it expects revenue in the range of $14.035 billion to $14.250 billion, which will show growth of about 10%-12%. The consensus estimate for this figure was $14.54 billion.
As of the end of the third quarter of 2022, 86 hedge funds reported owning stakes in Intuit Inc. (NASDAQ:INTU), significantly up from 75 hedge funds in the previous quarter. This shows that hedge fund sentiment for Intuit Inc. (NASDAQ:INTU) is positive.
Fundsmith made the following comment about Intuit Inc. (NASDAQ:INTU) in its 2022 yearly investor letter:
“Take the example of Microsoft and Intuit Inc. (NASDAQ:INTU). Microsoft shares are currently being valued at a P/E ratio of 25.0 times the consensus EPS estimate for the fiscal year ending June 2023. Meanwhile, Intuit is being valued at 28.4 times the non-GAAP consensus estimate for the fiscal year ending July 2023. Many investors and analysts may accept that Intuit is trading at a higher multiple given expectations of greater growth potential. However, Intuit removes share-based compensation from their non-GAAP EPS whereas Microsoft does not. Given that Intuit’s GAAP EPS guidance for the year ending 31st July 2023 is $6.92–$7.22, its non-GAAP guidance is $13.59–$13.89, and the consensus estimate for 2023 EPS is at $13.69, it seems clear that most sell-side analysts are accepting the company’s non-GAAP adjustments, which includes the removal of some $1.8bn of share-based compensation, in their estimates. If we include the impact of share-based compensation in Intuit’s 2023 EPS to make a more apples-to-apples comparison with Microsoft based upon GAAP EPS, Intuit’s 2023 EPS would be closer to $9, meaning that the shares would be trading at a multiple of about 43 times. I think investors and analysts may find a premium of 14% for Intuit over Microsoft (28.4 times versus 25.0 times) to be reasonable. I’m not so sure they are fully aware that Intuit shares are actually trading at a premium of 73% if share-based compensation is treated in the same manner between the two companies.
Many investors and analysts, including us, look to cash flow metrics more than accrual profits. Unfortunately, share-based compensation may cause distortions in cash flow metrics as well, even when they follow GAAP. Under GAAP, share-based compensation is added back in the cash flow from operating activities, which in turn is used in the computation of free cash flow. ..” (Click here to read the full text)
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