Now’s the time to buy software and SAAS stocks, Roth says

In the up is down world of investing right now, some may be finding it hard to find an investment that makes sense in the long term. But Roth analyst Richard K. Baldry says the answer has been under our noses the whole time.

In a research report released April 10, entitled “Software/SaaS: Sector Pulled Back Years Ago – Not Days Ago…Defensible Growth Ideas Abound”, Baldry laid out the case for the sector and provided some names he thinks are standouts.

“With macro uncertainties dominating the investment backdrop, we believe many software-driven names, including SaaS players and software-hybrids, represent compelling ideas given they have been in a bear market since COVID tailwinds dissipated roughly three years ago,” the analyst wrote. “Long-run sector average valuations of 8x run-rate revenues (net of net cash) and peak valuations of 10-12x have given way to a current average multiple of 3.6x. As margin calls and liquidity needs appear to be outweighing valuation concerns near-term (possibly explaining why Cryoport (CYRX) recently traded with a negative equity valuation when netting out estimated net cash reserves), we use this piece to highlight a few ideas where we view the risk/reward outlook as highly asymmetrically positive, typically because we view fundamentals as improving while valuations remain below the depressed sector average. These names include ASUR, CYRX, FIVN, OPRX, SSTI and ZETA.”

The analyst says the market correction on these stock is an overreaction that presents an opportunity for investors.

“We have long focused on recurring-revenue ideas in the software and software-hybrid space as we viewed them as having better defensibility in tough macro environments, while preserving strong growth profiles in expansionary environments,” he said. “While organic growth for our monitored universe had averaged more than 20% for over a decade prior to COVID, and spiked higher during the onset of COVID as many benefited from “work from home” demand surges, the universe has seen growth slow to an average of 10% in its most recent quarter. While the near-term growth slowdown is fair to factor into valuations, we view current depressed valuation levels as over-punishing many players, including some who have not seen growth slow (such as ZETA whose growth accelerated in 2024) and others who have shown signals that growth could potentially improve in 2025 (such as ASUR, CYRX, FIVN, OPRX and SSTI).”