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number cruncher

What are we looking for?

Software-as-a-service (SaaS) companies with bullish analyst sentiment. These businesses sell software on a subscription basis, instead of a once-off charge, making them attractive to investors because their forward-looking revenue is easier to forecast. SaaS companies form part of the S&P 500 Information Technology Sector Index.

The screen

Since bottoming on March 23, 2020, the S&P 500 IT Sector Index has nearly doubled, rising by nearly 96 per cent, and outperforming the S&P 500 by 13 percentage points during this period. With many employees working from home over the past year, many organizations have shifted how they deploy talent, and what tools they can equip their employees with to make them more productive while working remotely. As a result, several SaaS companies have seen their valuations skyrocket as their services become more widely adopted. Today, we screen for North American-based SaaS companies exhibiting strong analyst conviction.

  • First, we screen for North American-listed software companies with a market capitalization greater than US$1-billion.
  • Next, we screen for companies with highly favourable analyst sentiment. The StarMine Analyst Revisions Model tracks the changes in analysts’ recommendations of a stock. These upward and downward revisions in target prices have been shown to be highly correlated to stock price movements, meaning, for example, that if a highly ranked analyst increases their target price, the stock is likely to increase. We screen for companies with a score greater than or equal to 95, with 100 being the highest score. This model can help find stocks with further upside.

More about Refinitiv

Refinitiv, a London Stock Exchange Group business, is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges, and scale intelligently.

What we found

Software-as-a-service companies with bullish analyst sentiment

CompanyTickerMkt. Cap. (US$ Mil.)Analyst Revisions Model Score1Y Ttl. Rtn. (%)Recent Close (US$)
DocuSign Inc.DOCU-Q39,708.5100128.1205.65
Altair EngineeringALTR-Q4,862.397157.565.18
Riot Blockchain Inc.RIOT-Q4,786.5965,096.356.90
HubSpot Inc.HUBS-N22,021.796288.1475.27
2U Inc.TWOU-Q3,014.595104.740.74
Nutanix IncNTNX-Q5,658.69572.827.70

Source: Refinitiv

The screen, ranked by the StarMine Analyst Revisions Model score, produced six companies, all of which are listed in the United States and do not pay dividends.

DocuSign Inc., a cloud-based software suite used for automating electronic signing of documents, ranked highest on the Analyst Revisions Model with a score of 100. DocuSign has benefited from a surge in demand for e-signature use across many industries as remote working has increased substantially. DocuSign is focused on growing its DocuSign Agreement Cloud, a suite of products and integrations that helps organizations prepare, sign, act on and manage agreements, while allowing seamless integration into platforms such as Salesforce. Of the 17 analysts covering the stock, seven have a strong buy rating, eight have a buy rating, and the remaining two have a hold rating, signalling that there could be more upside for this stock.

HubSpot Inc. provides a cloud-based marketing and sales software platform that helps websites convert visitors into leads, and leads into customers. The company scored 96 on the Analyst Revisions Model and produced a one-year total return of 288 per cent. Unlike large enterprise-focused SaaS companies such as Salesforce.com Inc., HubSpot targets small and medium-sized businesses and focuses on a shorter sales cycle, with one-third of its revenue coming from businesses with fewer than 25 employees. Currently, 12 analysts covering HubSpot have a StarMine Analyst Rating (a model that ranks sell-side analysts on their accuracy for forecasting individual stocks) of 95 or higher, and all 12 analysts have either a buy or strong buy rating on the stock.

Investors are advised to do their own research before trading in any of the securities shown.

Stephen Donovan, MBA, is a customer success leader, Refinitiv buy-side and commodities trading for the Americas.

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