Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 10.3% over the past six months. This drop was worse than the S&P 500’s 2.4% loss.
A cautious approach is imperative when dabbling in these businesses as their valuations could plummet if AI disrupts their earnings potential. Taking that into account, here are three software stocks best left ignored.
Asure (ASUR)
Market Cap: $258 million
Created from the merger of two small workforce management companies in 2007, Asure (NASDAQ: ASUR) provides cloud based payroll and HR software for small and medium-sized businesses (SMBs).
Why Do We Think Twice About ASUR?
- Annual revenue growth of 15.1% over the last three years was below our standards for the software sector
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 7.9% underwhelmed
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 5.4 percentage points
At $9.50 per share, Asure trades at 1.9x forward price-to-sales. To fully understand why you should be careful with ASUR, check out our full research report (it’s free).
Manhattan Associates (MANH)
Market Cap: $11.38 billion
Boasting major consumer staples and pharmaceutical companies as clients, Manhattan Associates (NASDAQ: MANH) offers a software-as-service platform that helps customers manage their supply chains.
Why Do We Pass on MANH?
- Offerings struggled to generate meaningful interest as its average billings growth of 3.6% over the last year did not impress
- Estimated sales growth of 1.9% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 55.6% is way below its competitors, leaving less money to invest in areas like marketing and R&D
Manhattan Associates is trading at $188.50 per share, or 10.8x forward price-to-sales. Check out our free in-depth research report to learn more about why MANH doesn’t pass our bar.
Guidewire (GWRE)
Market Cap: $17.45 billion
Founded by two individuals involved in the development of leading procurement software Ariba, Guidewire (NYSE: GWRE) offers insurance companies a software-as-a-service platform to help sell their products and manage their workflows.
Why Are We Cautious About GWRE?
- Annual revenue growth of 12.4% over the last three years was below our standards for the software sector
- High servicing costs result in a relatively inferior gross margin of 61.4% that must be offset through increased usage
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
Guidewire’s stock price of $208 implies a valuation ratio of 13.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GWRE.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
