Software is rapidly reducing operating expenses for businesses. 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 15.4% over the past six months. This drawdown is a noticeable divergence from the S&P 500’s 10% return.
However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. With that said, here are two software stocks we think can generate sustainable market-beating returns and one we’re passing on.
One Software Stock to Sell:
Commvault (CVLT)
Market Cap: $4.22 billion
Born from the need to create ironclad protection in an increasingly dangerous digital world, Commvault (NASDAQ: CVLT) provides data protection and cyber resilience software that helps organizations secure, back up, and recover their data across on-premises, hybrid, and multi-cloud environments.
Why Are We Wary of CVLT?
- 10.3% annual revenue growth over the last five years was slower than its software peers
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Operating margin declined by 1.2 percentage points over the last year as it scaled
At $102.05 per share, Commvault trades at 3.4x forward price-to-sales. Check out our free in-depth research report to learn more about why CVLT doesn’t pass our bar.
Two Software Stocks to Buy:
Atlassian (TEAM)
Market Cap: $21.57 billion
Started by two Australian university friends who funded their startup with credit cards, Atlassian (NASDAQ: TEAM) provides software tools that help teams plan, track, collaborate, and share knowledge across organizations.
Why Will TEAM Outperform?
- Software is difficult to replicate at scale and leads to a stellar gross margin of 84.8%
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- Free cash flow margin is on track to jump by 9 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends
Atlassian’s stock price of $85.02 implies a valuation ratio of 3.2x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Guidewire Software (GWRE)
Market Cap: $11.12 billion
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Why Are We Backing GWRE?
- Average billings growth of 21.1% over the last year enhances its liquidity and shows there is steady demand for its products
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- Free cash flow margin of 21.9% is higher than many in the industry, giving it breathing room and optionality
Guidewire Software is trading at $133.25 per share, or 7.5x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week - FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
