Stocks to buy

The 3 Most Undervalued Software Stocks to Buy in May 2024

U.S. equities, especially undervalued software stocks, appear to be in rally mode. As of the end of Wednesday’s trading session, the tech-heavy Nasdaq Composite has risen 2.37 percentage points in the last month. Meanwhile, its counterpart the S&P500 has appreciated 3.18 percent. This comes after both indices suffered significant losses during the month of April, forcing equities investors and traders to question whether or not U.S. equities would be able to sustain a rally throughout 2024. The macroeconomic environment remains to be a key pain point for the market, and market participants should expect more volatility in the coming weeks.

Nevertheless, rising stock prices implies higher valuations. To help investors look for cheaper investments, below is a list of three of the most undervalued software stocks in the space these days.

PayPal (PYPL)

Closeup of the PayPal app icon seen on a Google Pixel smartphone. PayPal Holdings, Inc. (PYPL) is a global financial technology company operating an online payment system.

Source: Tada Images / Shutterstock.com

If you’re giving or receiving payments, PayPal (NASDAQ:PYPL) is already an established name for you. Founded in 1998, the payments platform boasts more than 400 million active accounts and offers a variety of payment services tailored for different kinds of merchants.

In early February, PayPal announced its fourth quarter earnings report for fiscal year 2023. The payments platform beat analyst estimates on revenue, earnings per share, and total payments volume. Revenue came in at $8 billion for the quarter and $29.8 billion for the full year. Both of which represent year-over-year growth in the high single digits. GAAP EPS figures for the fourth quarter and full fiscal year were $1.29 per share and $3.84 per share, respectively. PayPal was able to deliver strong earnings growth off the back of various organization costs cuts. Moreover, with PayPal’s Q1 2024 earnings print the company boosted its profit outlook for the year.

The payments platform trades at 15.5x forward earnings, and PayPal’s plans to revive its branded checkout business could create secular tailwinds for the business while also providing investors with multiple expansion.

Alphabet (GOOG,GOOGL)

Alphabet Inc. (GOOG, GOOGL) and Google logos seen displayed on smartphones. The Google stock split is happening today.

Source: IgorGolovniov / Shutterstock.com

Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), the parent company of internet giant Google, will be the only tech giant to make this list. The tech firm’s dominance in search is very well-known at this point. However, growth prospects in areas of both cloud computing and artificial intelligence coupled with its relatively low trading multiple make Alphabet one of the undervalued software stocks currently for sale.

Despite worries about Google Cloud and is competitive strengths with Amazon’s (NASDAQ:AMZN) AWS and Microsoft’s (NASDAQ:MSFT) Azure, Google’s cloud platform continues to be a robust engine of growth for the software giant. For Alphabet’s fourth quarter earnings report for fiscal year 2023, Google Cloud revenue increased 26% year-over-year. Additionally, in the company’s first quarter earnings print for fiscal year 2024, Google Cloud increased revenues by 18% on a year-over-year basis. Operating income for Google Cloud quadrupled from $191 million in Q1 2023 to $900 million in Q1 2024.

The announcement of the software firm’s first dividend also elated investors. As the company continues to grow in cloud and AI, while also keeping costs down, investors should find themselves quite pleased. Alphabet trades at 21.9x forward earnings, which is less than competitors like Apple (NASDAQ:AAPL), Amazon, and Microsoft.

Trimble (TRMB)

The Trimble (TRMB) headquarters in Sunnyvale, California.

Source: Tada Images / Shutterstock.com

Trimble (NASDAQ:TRMB) is a software platform working to bring digital transformation to the construction and infrastructure industries. The company’s software helps to with everything from project design and visualization to digital monitoring of equipment and real assets. The infrastructure and construction spaces are some of the most underserved sectors into terms of technology penetration, which makes the opportunity to help digitize these industries immense. Furthermore, the $1 trillion dollar infrastructure bill passed some years ago still has funded ready to be allocated, and this will help to provide secular growth tailwinds for Trimble for years to come.

In their recent quarterly earnings report for fiscal year 2024, Trimble was able to beat Wall Street expectations on both revenue and earnings per share. Revenue grew 4% year-over-year to $953.3 million, while annualized recurring revenue ballooned to $2 billion, up 23% on a year-over-year basis.

Trimble trades at 19.7x forward earnings, which is not very cheap, but given the opportunity in the space in which Trimble operates, the company’s growth prospects are solid.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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