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2 Software Stocks That Are Outperforming the Markets

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Software stocks have held up well in the coronavirus-led market selloff. Not only many of them have been resilient, but some of them have also significantly increased in value and outperformed the broader markets by a wide margin.

Two such software stocks that have done exceptionally well, especially in the recent past, are Absolute Software (TSX:ABT) and Enghouse Systems (TSX:ENGH). Shares of both these software companies are scaling new highs and have generated stellar returns so far this year.

Absolute Software has surged 72%

Absolute Software provides a platform for the management and security of computing devices. The uptick in demand for the company’s platform reflects well in its stock price. Shares of Absolute Software have surged more than 72% in two months. Moreover, it has increased by 43% so far this year, as compared to a 13% decline in the benchmark index.

The surge in Absolute Software stock is due to the company’s stellar performance across all of its key metrics. Absolute Software’s majority of revenues are recurring in nature, implying a stable and predictable income stream. Moreover, the company’s ACV base (annual contract value base), which is an indicator of future recurring revenues, is consistently growing. Further, in the most recent quarter, Absolute Software’s net ACV retention rate from existing commercial customers stood at 100%, which is an encouraging sign. Also, about 70% of the company’s ACV base represents Enterprise & Government customers. The Enterprise and Government verticals continue to grow at a healthy rate, indicating strong future revenues.

Investors should note that Absolute Software has very few direct competitors, which is positive. Moreover, the company maintains a strong financial position with no debt.

The consistent growth in ACV base, strong customer retention rate, and favourable market trends indicate that Absolute Software should continue to do well in the future.

Enghouse Systems stock at an all-time high

Shares of Enghouse Systems are up about 39% in two months. Moreover, its stock has increased by about 18% so far this year. Investors should note that the Enghouse stock has recently reached its all-time high, thanks to the company’s impressive financial performance. Besides increasing in value, Enghouse continues to boost shareholders’ returns through consistent dividend growth. To be precise, Enghouse has increased its dividend in the past 12 years with an annual growth of about 10%.

Enghouse provides enterprise software solutions, including customer interaction software and services that are witnessing increased demand. The software company continues to benefit from its diverse set of businesses and clients and a strong global presence. Moreover, its strategic acquisitions accelerated its growth further.

In the most recent quarter, Enghouse’s revenues jumped 28.6%. Moreover, its adjusted EBITDA soared 34.2%. Also, it announced a 22.7% increase in its quarterly dividend.

Enghouse will continue to perform well in the coming quarters, thanks to the expansion of its product suite through acquisitions. Moreover, continued strength in its base business led by higher demand augurs well for future growth. Further, Enghouse’s robust financial position enables it to acquire accretive businesses in the future and expand its global footprint.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Enghouse Systems Ltd.

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