Tech Treasures: 2 Undervalued Software Stocks to Watch

These two software stocks have a bright future, according to analysts, and a bright present for investors getting in on the undervalued stocks.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published July 15, 2024 5:00 pm EDT

When it comes to tech stocks, it can be incredibly hard to find stocks that are undervalued. In fact, it’s nearly next to impossible. But that doesn’t mean it is impossible.

In fact, analysts believe these two software stocks offer plenty of value. And that they are indeed undervalued at these levels. So let’s look at CAE (TSX:CAE) and Coveo Solutions (TSX:CVO), two software stocks investors should watch.

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies." — Source: Getty Images

CAE stock

CAE Inc. is a leader in simulation and modelling technologies, primarily serving the civil aviation and defence sectors. The company provides integrated training solutions, including flight simulators, training services, and other technologies. These are designed to enhance the safety and efficiency of operations. Founded in 1947, CAE has established a robust market presence with over 160 training locations worldwide.

Analysts consider it undervalued due to its strong market position, innovative capabilities, and long-term growth prospects. Despite recent market fluctuations, CAE has consistently demonstrated strong financial performance. For example, its recent quarterly earnings showed a revenue increase of 17% year-over-year, reaching $1.02 billion.

The company’s adjusted earnings per share (EPS) also grew by 21%. This reflects its operational efficiency and robust demand for its simulation products. Analysts forecast continued growth as global aviation recovers and defence spending increases. Over the next fiscal year, analysts project EPS growth of 15%.

CAE’s innovative capabilities and comprehensive training solutions position it well for continued growth. The company is leveraging advancements in digital technologies and artificial intelligence (AI) to enhance its training offerings. As the aviation industry rebounds and defence budgets expand, CAE is expected to see sustained demand for its products and services.

Coveo

Coveo Solutions specializes in AI-powered search and recommendation solutions, making it a pure-play software stock with significant growth potential. The company’s platform integrates machine learning, AI, and data analytics to deliver personalized search results and recommendations across various industries. This includes e-commerce, service, and workplace applications. Founded in 2005, Coveo has gained recognition for its innovative solutions and strong market presence.

Analysts highlight Coveo as undervalued due to its cutting-edge technology and expanding market presence. The company’s latest earnings report showcased a 28% increase in revenue year-over-year, totalling $28 million. Additionally, Coveo’s recurring revenue, a critical metric for software companies, grew by 33%, indicating strong customer retention and acquisitions. With a gross margin of 76%, the company shows excellent profitability potential. Analysts are bullish on Coveo’s future, forecasting 25% annual revenue growth over the next three years. This is being driven by increasing adoption of AI-driven solutions across various industries.

In fact, Coveo is poised for significant growth as businesses continue to embrace AI and data-driven technologies. The company’s focus on enhancing the user experience through personalized search and recommendations aligns with market trends towards more intelligent and efficient digital interactions. Coveo’s expanding product portfolio and strategic partnerships further bolster its market position. This makes it a compelling investment in the tech sector.

Bottom line

CAE and Coveo Solutions represent compelling investment opportunities in the tech sector due to their strong financial performance, innovative capabilities, and promising growth prospects. CAE’s leadership in simulation and training solutions, coupled with the recovery in aviation and defence markets, positions it for continued success. Meanwhile, Coveo’s AI-driven search and recommendations platform aligns with the growing demand for intelligent digital solutions, supporting its robust growth outlook. So for investors looking towards long-term growth, keep an eye on these two software stocks.