The demand for software solutions is expected to keep rising due to extensive remote lifestyles and continued digitization. However, the possibility of aggressive interest rate hikes later this year to counter the surging inflation could lead to the software industry witnessing a downtrend. Investors’ losing interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 3.3% decline over the past month and 17.3% loss year-to-date.
According to St. Louis Federal Reserve Bank President James Bullard, interest rates could be hiked to 3.5% by the end of the year to curb the current record-high inflation. Therefore, overvalued software stocks might not be able to withstand such stringent monetary policy tightening.
Given this backdrop, Wall Street analysts believe popular software stocks, Everbridge, Inc. (EVBG) and Coupa Software Incorporated (COUP), are overvalued at the current price levels and are likely to decline further.
Click here to check out our Software Industry Report for 2022
Everbridge, Inc. (EVBG)
EVBG operates as a software company that provides enterprise software applications that automate and accelerate organizations' operational response to critical events in the United States and internationally.
EVBG’s revenue increased 36% year-over-year to $102.83 million for the fourth quarter ended December 31, 2021. However, its total operating expenses increased 15.7% year-over-year to $83.37 million. Also, its total current liabilities came in at $304.33 million for the period ended December 31, 2021, compared to $236.23 million for the period ended December 31, 2020. The company’s total liabilities came in at $1.02 billion, compared to $708.64 million, for the same period.
In terms of forward EV/S, EVBG’s 4.94x is 61.2% higher than the industry average of 3.07x. Moreover, its forward P/S of 4.60x is 41.8% higher than the industry average of 3.24x.
Analysts expect EVBG’s EPS to decline by 33.3% for the quarter ended June 2022. The stock has lost 25.9% year-to-date to close yesterday’s trading session at $49.87. Moreover, Wall Street analysts expect the stock to hit $43.70 in the near term, which indicates a potential decline of 12.4%.
EVBG’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a D grade for Stability and Quality. Click here to access the additional POWR Ratings for EVBG (Momentum, Growth, Value, and Sentiment). It is ranked #21 of 24 stocks in the F-rated Software - SAAS industry.
Coupa Software Incorporated (COUP)
COUP provides a cloud-based business spend management platform that connects its customers with suppliers worldwide. The company provides visibility into how companies spend money, optimizes supply chains, manages liquidity, and enables businesses to achieve savings that drive profitability.
COUP’s total revenues increased 18.2% year-over-year to $193.30 million for the fourth quarter ended January 31, 2022. However, its net loss came in at $96.01 million, compared to a loss of $61.39 million in the previous period. Its loss per share came in at $1.29 compared to a loss per share of $0.85 in the year-ago period. The company’s total liabilities came in at $2.29 billion for the period ended January 31, 2022, compared to $2.06 billion for the period ended January 31, 2021.
In terms of forward EV/S, COUP’s 9.63x is 214.1% higher than the industry average of 3.07x. Moreover, its forward P/S of 8.87x is higher than the industry average of 3.24x by 173.6%.
Analysts expect COUP’s EPS to decline 80.8% for the quarter ended July 2022. The stock has lost 37.2% year-to-date to close yesterday’s trading session at $99.27. Also, Wall Street analysts expect the stock to hit $95.61 in the near term, which indicates a potential decline of 3.7%.
COUP’s POWR Ratings reflect its poor prospects. The stock has an overall D grade, equating to a Sell in our proprietary rating system. In addition, it has a D grade for Stability, Sentiment, and Quality.
We’ve also rated it for Growth, Value, and Momentum. Click here to access all the COUP ratings. COUP is ranked #49 of 61 stocks in the D-rated Software - Business industry.
EVBG shares were unchanged in after-hours trading Wednesday. Year-to-date, EVBG has declined -28.46%, versus a -6.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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