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From commerce to culture, software is digitizing every aspect of our lives. The undeniable tailwinds fueling the industry have also led to strong returns for SaaS stocks lately as they’ve gained 7% over the past six months, outpacing the S&P 500’s 1.1% rise.

Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. On that note, here is one software stock poised to generate sustainable market-beating returns and two that may face trouble.

Two Software Stocks to Sell:

Dropbox (DBX)

Market Cap: $7.72 billion

Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ:DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.

Why Are We Wary of DBX?

1. Offerings struggled to generate meaningful interest as its average billings growth of 1.1% over the last year did not impress

2. Estimated sales decline of 2.8% for the next 12 months implies a challenging demand environment

3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 2.5 percentage points

Dropbox is trading at $25.62 per share, or 3.2x forward price-to-sales. To fully understand why you should be careful with DBX, check out our full research report (it’s free).

F5 (FFIV)

Market Cap: $15.36 billion

Initially started as a hardware appliances company in the late 1990s, F5 (NASDAQ:FFIV) makes software that helps large enterprises ensure their web applications are always available by distributing network traffic and protecting them from cyberattacks.

Why Is FFIV Not Exciting?

1. Sales trends were unexciting over the last three years as its 2.7% annual growth was well below the typical software company

2. Average billings growth of 4.5% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand

3. Projected sales growth of 4.5% for the next 12 months suggests sluggish demand

At $267.07 per share, F5 trades at 5.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FFIV.

One Software Stock to Watch:

DoubleVerify (DV)

Market Cap: $2.52 billion

When Oren Netzer saw a digital ad for US-based Target while sitting in his Tel Aviv apartment, he knew there was an unsolved problem, so he started DoubleVerify (NYSE:DV), a provider of advertising solutions to businesses that helps with ad verification, fraud prevention, and brand safety.

Why Are We Positive On DV?

1. Platform plays a pivotal role in customer workflows as its net revenue retention rate punches in at 119%

2. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently

3. Healthy operating margin of 12.5% shows it’s a well-run company with efficient processes