Computer software has helped to revolutionize how business is done in the office, and software companies have performed a similar feat on Wall Street. Innovators in the computer industry have been able to convert this computer technology into profitable holdings for investors. Five stocks to consider for earning profits in business software are Adobe Systems Incorporated (ADBE), Autodesk Inc (ADSK), BMC Software Inc (BMC), Check Point Software Technologies Ltd (CHKP) and Salesforce.com (CRM).
Adobe Systems Inc
San Jose, CA-based Adobe Systems is a diversified producer of software for design and development, as well as for personal use. Acrobat is one of the most widely used PDF readers in the world. Currently trading near $32 per share, the stock is near the top of its 52-week range of $22.67 - $35.99, and it has a one-year target estimate of $31.50. The company does not pay a dividend, but Adobe's earnings per share have risen consistently for the last 10 years at a 14.5% annual rate.
This steady growth has made it a popular stock to hold. This is especially true of institutional investors, who hold nearly 88% of the company's available stock. While quarterly revenue was up 14.3%, its year-to-year earnings dipped 35.4%. The share price may be a bit high, as evidenced by its price to book ratio of 2.71. While Adobe has an economic moat thanks to the wide use of its products, investors should be wary of a possible slowdown in share price increases. Since the company does not pay dividends, investors may want to wait before taking any new positions in Adobe Systems.
Maker of the famous computer-aided design software AutoCAD, Autodesk is headquartered in San Rafael, CA and has a capitalization of $8.7 billion. Currently trading around $38 per share, the company's 52-week range is $22.99 - $46.15 and its one-year target is just over $40 per share. Autodesk does not pay an annual dividend.
After trading for over $45 per share in May, 2011, the stock experienced a steep drop, falling by almost half in August. Since that time, Autodesk has rebounded strong, and its share price was up nearly $8 (almost 27%) in January. Although its price to book ratio of 4.69 is quite high, this stock has a number of indicators of continued success. Autodesk has recently moved above its 200-day average, suggesting a bullish move. In addition, the company's quarterly revenue growth (up 15.1%) and earnings (for a 35.8% increase) appear supportive of its climb. The development of Autodesk's Digital Entertainment Creation software is giving it credibility in the entertainment industry. While its indicators are mixed, there are some definite signs of potential profit for investors.
BMC Software Inc
Houston, TX-based BMC Software has been a developer of software providing system and service management for manufacturers, telecommunication companies, the education industry, retailers, hospitals, and more. The company has a market cap of $6.24 billion, and its share price of $38 is below the midpoint of its 52-week range of $31.62 to $56.55. Although it has a one-year target of $41 per share, it has experienced a drop in price of over 40%, and its price to book ratio of 4.28 indicates that it may not be able to hold its current price.
Although BMC has a quarterly earnings increase of almost 10% over the previous year, its revenue gain was a meager 1.5%. In addition, BMC Software accounts receivables have declined over the last two fiscal quarters, with the 4th quarter of 2011, reaching nearly 20%. Although the company still has a price to earnings ratio of nearly 15, concerns over the lagging revenue coming in the door make this a stock best avoided at this time.
Check Point Software
While other technology companies seem to have lost some momentum, Check Point Software is definitely not following the trend. The company specializes as a developer of software and hardware products for the information technology industry. Currently trading around $58 per share, the stock is nearing the top of its 52-week range of $46.90 to $61.60, and its one-year target estimate of $65.40 suggests that it is prepared to blow past the previous high.
A low volatility company (as shown by its beta of 0.79), Check Point seems ready to continue its climb. Making a push past its 200-day moving average, Check Point revenue increased by more than 12% during the last quarter of 2011. The company's economic moat continues to be the ongoing Internet security issues that force companies to wage a battle against hackers. Although the company's price to book ratio is high at 3.89, Check Point's revenue and year-to-year earnings growth of 16.5% suggest that investors should look at taking a potential position in the stock.
Salesforce.com has created an interesting buzz among many investors. The San Francisco, CA-based company has seen explosive success; thanks in no small part to its cloud-based software that provides customer and collaboration relationship management services. A leader in providing Internet-based information to business travelers, the company's stock as responded to the demand. Currently trading near $122, Salesforce.com stock is below the midpoint of its 52-week range of $94.09 - $160.12, well under its one-year target of $147. The company is coming off a solid 2011 where its quarterly revenue grew at an impressive 36%, while avoiding volatility, as evidenced by its beta of 0.98.
Analysts are becoming concerned that Salesforce.com is riding a bubble that is ready to pop. Due to increasing competition in cloud-based applications, many believe that the company simply cannot justify its share price with earnings. This theory is backed up by the price to book ratio, with has risen to a troubling 11.18. Although the company has done very well, investors should move with extreme caution to make sure that they do not get caught if and when the bubble at Salesforce.com pops.
Computing a Profit with Business Software Companies
As the United States' economy continues to show signs of improvement, business software is likely to ride the crest. A number of companies are pushing past their limits to post some great gains. Investors should look to enter positions in Autodesk Inc and Check Point Software Technologies Ltd, while they should be slow to make any new moves on Adobe Systems Incorporated, BMC Software Inc, and Salesforce.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.