According to a November 2019 report from Gartner, the public cloud services sector is expected to rise 17% in 2020, so Money and Markets will present you with our four cloud software stocks to buy now.
That 17% growth translates to $266.4 billion, up from $227.8 billion in 2019.
Projections say the market will reach $354 billion by 2022.
“At this point, cloud adoption is mainstream,” Gartner research vice president Sid Nag said. “The expectations of the outcomes associated with cloud investments therefore are also higher. Adoption of next-generation solutions are almost always ‘cloud-enhanced’ solutions, meaning they build on the strengths of a cloud platform to deliver digital business capabilities.”
Clearly, it’s a market that’s growing. And, it’s one you can profit from.
There are tons of options when it comes to looking for cloud software stocks.
You have big players like Amazon.com Inc. (Nasdaq: AMZN) and Microsoft Co. (Nasdaq: MSFT) to smaller companies you likely have never heard of.
The key is to find a balance between the companies you know and trust to those that may be more speculative and riskier.
We believe this list strikes that balance.
That’s why we are sharing with you Money and Markets‘ four cloud software stocks to buy now.
4 Cloud Software Stocks to Buy Now
Based in Silicon Valley, Cloudera Inc. (NYSE: CLDR) has a cloud data platform programmed by an open-source distribution.
The company was founded in 2008. Three years later, Hortonworks — another open-source data cloud company — was created by former Yahoo engineers. In January 2019, Cloudera acquired Hortonworks to create a company with more than $479 million in 2019.
The company had 29% growth in its cloud subscription service, up to $406.3 million. Cloudera also had $34.3 million operating cash flow — a big turnaround from the minus-$42.3 million the year before.
The last seven months have seen a strong growth pattern for Cloudera. Its share price has risen more than 130% during that time.
Despite that, the price of Cloudera stock is quite affordable — around $11 per share.
In terms of stock valuation, Cloudera is a bargain.
The company’s price-to-sales ratio is 4.2, which is much lower than the software sector average of 7.95.
Cloudera’s price to book is 2.1, whereas the industry average is 13.06.
Those factors together suggest Cloudera is well undervalued compared to other companies in the software and programming space.
Because it remains a strongly undervalued stock and its current price is affordable for even a new investor, Cloudera is one of our four cloud software stocks to buy now.
2. HubSpot Inc.
One of the key uses businesses have for the cloud goes beyond just storing documents and data.
A growing segment in the space is using cloud-based software for business functions like human resources, sales and marketing.
HubSpot Inc. (NYSE: HUBS) is a growing player in the field of providing cloud software for both inbound sales and marketing.
Companies use HubSpot for managing social media, search engine optimization and website content management.
Since June 2017, shares of HubSpot have been on the rise — as much as 213% to a 52-week high of $204.88 back in August 2019.
As with most tech stocks, there was a pullback after that, but HubSpot only dipped slightly. Now it’s trending back up, but still below that 52-week high. That indicates there is room for the stock to grow.
In terms of valuation, HubSpot is about in line with industry averages.
Its price to book is at 12.1 — below the 13.06 average for its peers. The company’s price to sales is at 12, which is higher than the 7.95 average but not too far off. While the price to earnings is high — 115.1 — its price-to-earnings growth — 2.77 — was in the range of the 2.56 average for software companies.
Because there is room for HubSpot to grow and its technical indicators are in line with other software companies, HubSpot is one of our four cloud software stocks to buy now.
3. Salesforce.com Inc.
If you’re looking for an industry leader in cloud software, you don’t have to look much farther than Salesforce.com Inc. (NYSE: CRM).
The company develops and sells customer relations management software to businesses across a wide spectrum. (pro tip: We also actually recommended this company as a buy in another sector!)
Salesforce had a strong 2019 with sales of more than $13 billion, an increase of 26.02% over 2018. The company reported quarterly sales of $3.9 billion for the quarter ending July 31, 2019 — a year-over-year increase of 21.82%. It’s Q3 2020 earnings beat both earnings and revenue projections.
Since December 2018, shares of Salesforce have grown by 55%. In January 2020, the stock had tremendous growth of nearly 12%.
Technically speaking, the company’s price to earnings is high — 208.3 — compared to other companies in the space. However, it’s price to sales — 10.4 — and price to book — 5 — is below the industry average.
It suggests Salesforce can still grow in share price.
Because there is no reason to suggest Salesforce won’t continue moving up and its solid footing as an industry standard in cloud-based customer service software makes Salesforce one of our four cloud software stocks to buy now.
4. Equinix Inc.
The next company is a bit different than what you might expect in terms of cloud companies.
Equinix Inc. (Nasdaq: EQIX) is actually a real estate investment trust, or REIT. A REIT is a company that owns or finances income-producing real estate in a range of sectors.
Equinix owns property used for data centers — which use the cloud to store data. It is very similar to owning specific real estate.
Since late 2010, when shares of Equinix were trading at around $61, to today, the share price has jumped a whopping 860%.
But unlike traditional stocks, the valuation of a REIT is best measured when looking at its net assets. Examining cash, indirect property assets, net liabilities, dividends and distribution gives a good picture as to the value of any REIT.
The enterprise value of Equinix is a little more than $62 billion while its total assets are valued at around $22.8 billion. Both of those numbers have been steadily climbing.
Perhaps the most attractive part of Equinix is its dividend. As with other REITs, Equinix pays a dividend to its shareholders.
Currently, its yield is at 1.62%. During its last payout, Equinix paid more than $809 million in dividends to its shareholders. That’s $2.40 per share.
Because of its steady growth and its strong dividend payout, Equinix is one of our four cloud software stocks to buy now.
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Want to see recommendations from an industry not listed here? Let us know at firstname.lastname@example.org or in the comment section below.