Tech stocks took a beating in last week’s market-wide sell off.
But one Wall Street analyst thinks a special breed of software companies are well positioned to withstand choppy stock market conditions.
In a note published Sunday, Evercore ISI analyst Kirk Materne flagged a group of software companies and compared them to February 2016 levels — that’s when the stock market reached a short-lived low point amid uncertainty and fear.
“We believe that when it comes to software investing, times of macro stress and market volatility have usually ended up being good buying opportunities,” Materne wrote, adding that investors who look past the “noise in prior crises have generally been rewarded,” three to six months later.
The key? Many companies in the software sector have built businesses based on recurring revenue, giving the businesses a “durability” that’s now well-understood by investors, Materne wrote.. The top 25 software companies today have 69% of their revenue from recurring business customers, compared to 42% 10 years ago, he said.
Materne highlighted software companies with estimated growth of more than 20% in the upcoming years. Those stocks tend to have an enterprise value of around 5x their revenue. And as their revenues grow, so will their valuations.
Here are 18 high-growth software companies to keep on your radar: