Stock Watch

3 SaaS growth stocks underpinned by strong financials

We look at three SaaS growth stocks with solid financials and soaring share prices.

SaaS stocks have been outperforming even the most optimistic expectations this year. And there’s little sign of a slowdown with the SaaS market expected to be worth $185.6 billion by 2024.

$185.6bn

Value of the SaaS market by 2024

Investors with an eye on the bottom-line might be wondering if these stocks are overvalued. Yet among the buying frenzy are companies whose rocketing share prices are backed up by solid financial performances.

 

Alteryx

Demand for Alteryx's [AYX] powerful analytics platform saw a 38% jump in the number of customers last year. Tech watchers have taken note with Alteryx earning a spot on Deloitte’s Technology Fast 500™.

How did it make Deloitte’s prestigious list? Quarter-on-quarter the company has been knocking out 50% growth. Total revenues have grown at a CAGR of 70.61x over a 2-year period. And while other tech companies have seen losses, Alteryx has managed to maintain an EBIT margin of 8.35% in the last twelve months.

Alteryx have matched financial growth with a meteoric rise in share price. Since the start of the year the stock is up 50.44%, and a huge 175% in the past 12 months.Alteryx 1-year share price performance, CMC Markets, 16 May 2019

 

Guidance for Q2 is positive, with the company’s earnings per share expectations between $0.36 and $0.42. Full-year revenues are expected to come in between $345 to $350 million, up 36% on the previous year. 

Zacks has upgraded the stock to a "Buy" rating, and pinned a $110 target on the share price. That’s a hefty 26% upside if hit.

 

Appfolio

Appfolio’s [APPF] share price is up 57.96% since the start of the year, easily outpacing both the S&P 500's 14.8% gain and the Zacks Internet - Software Industry’s 29.43%. In the past two years the company has grown revenues at a CAGR of 33.7x, and for the past 12 months it has sustained an EBIT margin of 8.21%.

Yet, the property management software company has missed earnings per share forecasts for three of the past four quarters.

 

Market cap$3.17bn
PE ratio (TTM)169.56
EPS (TTM)0.55
Quarterly Revenue Growth (YoY)34.80%

Appfolio share price vitals, Yahoo finance, 16 May 2019

 

In Appfolio's Q1 2019 results, revenue came in at $57.1 million, up from the $42.3 million seen in the same quarter last year. Earnings per share came in at $0.11, missing Zacks Consensus Estimate of $0.15. Zacks now pegs earnings per share at $0.84 for the full year. Expectations are for full year revenue to come in at $250 million to $255 million.

If the stock is going to keep soaring, investors will be looking for it to hit earnings expectations in the next round of results. Failure to do so could trigger a sell-off.

 

Aspen Technology

Aspen Technology [AZPN] broke through its previous all-time high share price late last month, hitting $122.9. Momentum is clearly with the stock. Since the start of the year the share price is up 40.66%, and 22.23% in the past 12 months. At the time of writing, shares are trading just off their 52-week high.

Founded in 1994, the company has built up an impressive 44.61% EBIT margin. It's also no stranger to rewarding its shareholders. Last year it posted earnings per share of $0.53, while this was down from the $0.73 seen in 2017, it was still a good result for anyone who owns the stock. 

 

Market cap$7.89bn
PE ratio (TTM)90.55
EPS (TTM)1.26
Return on Equity (TTM)123.40%

Aspen Technology share price vitals, Yahoo finance, 16 May 2019

 

Return on earnings (TTM) comes in at an impressive 21%. That means for every $1 it brings in, the company generates $0.21 in profit.

Aspen Technology looks like it will reward shareholders yet again this year. Analysts are expecting earnings per share to grow 56.7%, smashing the 12% industry average. 

But can the stock go any higher? Well analysts have put an average price target of $124.75 on the stock. Hitting that would represent a 7% upside on the current share price.

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