The Best Software Stock to Buy in November and the Worst

The Federal Reserve has hiked interest rates six times this year to combat record-high inflation. The consecutive rate hikes have led to a broad tech selloff, with the tech-heavy Nasdaq composite slumping 27.9% year-to-date. However, with inflation slowing in October, the Fed might reduce its rate hike aggression for the coming months, which might bode well for tech and software stocks.

On the other hand, amid rapid digitalization trends, demand for software goods and services is expected to remain robust. According to Statista, revenue in the software market will reach $297.10 billion in 2022. Enterprise Software, the market’s largest category, is expected to hit $118.50 billion for the same period.

“Enterprise IT spending is recession-proof as CEOs and CFOs, rather than cutting IT budgets, are increasing spending on digital business initiatives,” said John-David Lovelock, Distinguished VP Analyst at Gartner.

Given this backdrop, fundamentally strong software stock Commvault Systems, Inc. (CVLT) might be an ideal buy for November. However, considering the economic uncertainties, Robinhood Markets, Inc. (HOOD) might be best avoided.

Stock to Buy:

Commvault Systems, Inc. (CVLT)

CVLT provides data protection and information management software applications and related services globally. The company sells its products and services to large enterprises, small and medium-sized businesses, and government agencies.

On November 2, 2022, CVLT announced a new approach to data protection with the launch of Metallic File & Object Archive, a Data Management as a Service solution designed to lower storage costs while cost-effectively transforming how organizations navigate the world of Governance, Risk, and Compliance. This should boost the company’s portfolio.

Moreover, on October 25, 2022, CVLT announced the expanded protection for Kubernetes workloads, including fully automated management, replication, migration, and security enhancements. The new features will offer customers simple management and enterprise-grade protection for hybrid, multi-cloud environments.

CVLT’s total revenues increased 5.7% year-over-year to $188.06 million for the second quarter that ended September 30, 2022. Its gross margin increased by 3% year-over-year to $155.76 million. Also, its EPS came in at $0.10, up 150% year-over-year.

Street expects CVLT’s revenue to increase 3.6% year-over-year to $797.27 million in 2023. Its EPS is estimated to grow 6% year-over-year to $2.66 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past three months, the stock has gained 15.9% to close the last trading session at $65.73.

CVLT has an overall A rating, which equates to a Strong Buy in our POWR Ratings systems. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CVLT has an A grade for Growth and Quality and a B for Value. Within the Software – Application industry, it is ranked first among 139 stocks. Click here for the additional POWR Ratings for Sentiment, Momentum, and Stability for CVLT.

Stock to Avoid:

Robinhood Markets, Inc. (HOOD)

HOOD is a financial services platform that allows users to invest in stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. The company also offers learning and education solutions, which include Robinhood Snacks, Robinhood Learn, Newsfeeds, Robinhood lists and alerts, and First trade recommendations.

In terms of forward Price/Sales, HOOD is currently trading at 6.11x, 110.9% higher than the industry average of 2.90x.

HOOD’s trailing-12-month net income margin of negative 95.77% is significantly lower than the 27.70% industry average. Its trailing-12-month ROCE of negative 17.92% compare with the 11.55% industry average.

HOOD’s total revenue came in at $361 million for the third quarter that ended September 30, 2022, down marginally year-over-year. Moreover, its transaction-based revenues came in at $208 million, down 22.1% year-over-year. Its current liabilities came in at $17.51 billion for the period ended September 30, 2022, compared to $12.35 billion for the period ended December 31, 2021.

HOOD’s revenue is expected to decrease 24.4% year-over-year to $1.37 billion in 2022. Over the past six months, the stock has lost 65.8% to close the last trading session at $9.46.

HOOD’s overall D rating equates to a Sell in our POWR Ratings system. It has an F grade for Stability and a D for Value and Quality. The stock is ranked #111 in the Software – Application industry.

We’ve also rated HOOD for Sentiment, Momentum, and Growth. Get all the HOOD ratings here.

CVLT shares were trading at $66.05 per share on Friday afternoon, up $0.32 (+0.49%). Year-to-date, CVLT has declined -4.16%, versus a -14.31% rise in the benchmark S&P 500 index during the same period.