The business and technology industries are facing economic challenges, but there are regulatory incentives that may encourage growth and innovation in 2023 and beyond. The tech sector has not only survived but also thrived despite the disruptions caused by the pandemic in recent years. The crisis has forced many companies to adopt new digital strategies and drastically alter their work models, propelling them into the future.
On March 15, CNBC’s Deirdre Bosa noted that long-term investors in the tech space are looking for safety. She observed that well-capitalized companies have outperformed their smaller counterparts in the tech industry. In the Software segment, Bosa pointed out that Smartsheet Inc. (NYSE:SMAR) and SentinelOne, Inc. (NYSE:S) are "solid recurring revenue plays". However, she admitted that the financing landscape in the technology sector has rapidly declined, especially after the collapse of the Silicon Valley Bank. The tech space is yet to see how Adobe Inc. (NASDAQ:ADBE)'s acquisition of Figma and Microsoft Corporation (NASDAQ:MSFT)'s acquisition of Activision Blizzard, Inc. (NASDAQ:ATVI) will play out, but Bosa told investors that Wall Street is on board with Meta Platforms, Inc. (NASDAQ:META)'s brutal layoffs, given that core growth is the main focus for now.
The current focus of businesses is not solely on expanding their operations, but on maximizing profits, retaining customers, and improving efficiency. The implementation of strategies like staff reductions and redirecting resources towards core business areas are indications of this change. As a result, software and tech companies will strive to reduce costs by cutting back on expensive marketing, increasing automation, and reducing the number of special offers for new customers. According to Statisa.com, the software market is estimated to generate a revenue of $659 billion by 2023, with Enterprise Software being the largest segment, projected to reach a market volume of $271.80 billion during the same period. The market is expected to grow at an annual rate of 5.42% between 2023 and 2028, leading to a market volume of $858.10 billion by 2028. The United States is anticipated to generate the highest revenue among all countries, with an estimated revenue of $338.20 billion in 2023.
The technology industry is exploring new avenues for generating revenue by venturing into the healthcare sector, utilizing digital innovations to facilitate innovation and change. In addition, these companies are endeavoring to employ technologies like 5G, AI, and edge computing to revolutionize other sectors such as manufacturing, real estate, and retail. Some of the best software stocks to invest in include Salesforce, Inc. (NYSE:CRM), ServiceNow, Inc. (NYSE:NOW), and Oracle Corporation (NYSE:ORCL). However, we discuss the best cheap software stocks in this article. Investors can also check out 25 Largest Software Companies in the World by Revenue, 13 Best Software Stocks to Invest In, and 12 High Growth Software Stocks that are Profitable.
Our Methodology
To find cheap software stocks according to analysts, we used screeners to identify utility stocks whose average analysts price estimates are significantly higher than their current stock price. That means these stocks are cheap when compared to their true potential, according to Wall Street analysts. With each stock we have mentioned its upside potential from its current levels based on its average analyst price target. All these stocks have PE ratios under 15.
12 Cheap Software Stocks to Buy According to Analysts
Average Upside Potential Based on Analyst Ratings: 12.15%
Average Price Target: $62.50
ePlus inc. (NASDAQ:PLUS) delivers IT solutions to organizations globally, facilitating the streamlining of IT systems and supply chain processes. The company operates through two divisions – Technology and Financing. The Technology division provides a range of products and services, such as hardware, software, maintenance, software assurance, as well as in-house and outsourced services, including managed, professional, security solutions, cloud consulting and hosting, staff augmentation, server and desktop support, and project management services. On February 7, ePlus inc. (NASDAQ:PLUS) reported a FQ3 Non-GAAP EPS of $1.38 and a revenue of $623.5 million, up 26% on a year-over-year basis.
On March 13, ePlus (NASDAQ:PLUS) said that its subsidiaries have made changes to a credit agreement, resulting in an increase in borrowing capacity from $425 million to $500 million. The credit facility includes a senior secured floor plan facility, which is at the discretion of the borrower.
According to Insider Monkey’s fourth quarter database, 9 hedge funds were bullish on ePlus (NASDAQ:PLUS), compared to 8 funds in the prior quarter. Touk Sinantha’s AltraVue Capital is the largest stakeholder of the company, with 867,930 shares worth $38.4 million.
Like Salesforce, Inc. (NYSE:CRM), ServiceNow, Inc. (NYSE:NOW), and Oracle Corporation (NYSE:ORCL), ePlus inc. (NASDAQ:PLUS) is one of the top software stocks to watch.
Average Upside Potential Based on Analyst Ratings: 22.57%
Average Price Target: $26.73
Dropbox, Inc. (NASDAQ:DBX), a company based in San Francisco, California, provides a file hosting service that includes cloud storage, file synchronization, personal cloud, and client software. On February 16, Dropbox, Inc. (NASDAQ:DBX) reported a Q4 non-GAAP EPS of $0.40 and a revenue of $598.8 million, outperforming Wall Street estimates by $0.01 and $5.46 million, respectively. The number of paying users for the current period was 17.77 million, which is an increase from 16.79 million during the same period in the previous year.
On February 17, RBC Capital analyst Rishi Jaluria raised the firm's price target on Dropbox, Inc. (NASDAQ:DBX) to $30 from $27 and kept an Outperform rating on the shares. Although the company's Q4 results were "decent", macro impacts are beginning to affect churn and price sensitivity. However, the management has given a "suitably conservative" forecast for 2023. The analyst also mentioned that the acquisition of FormSwift in December appears to have a positive effect.
According to Insider Monkey’s fourth quarter database, 30 hedge funds were bullish on Dropbox, Inc. (NASDAQ:DBX), compared to 32 funds in the prior quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the biggest stakeholder of the company, with 3.20 million shares worth $71.6 million.
Here is what Arch Capital has to say about Dropbox, Inc. (NASDAQ:DBX) in its Q2 2022 investor letter:
“In March, we decided to buy Dropbox with some of our cash position. We had sold the stock in 2021 due solely to valuation concerns, but with the stock cratering in early 2022, we decided to revisit the company. It turns out, the business was still as strong as ever. If you want more detail on why we like Dropbox, you can read our report from back in Q1 here.”
Average Upside Potential Based on Analyst Ratings: 23.04%
Average Price Target: $10.50
Immersion Corporation (NASDAQ:IMMR) is a company located in Aventura, Florida that specializes in developing and licensing haptic technology, which is also referred to as touch feedback technology. The company also approved a new stock repurchase program of up to $50.0 million for 2023 on January 3.
On February 6, Hamed Khorsand, an analyst at BWS Financial, assigned a Buy rating and a price target of $11 for Immersion Corporation (NASDAQ:IMMR). According to the firm, the recent change in management could lead to significant developments. The appointment of Eric Singer as CEO suggests that Immersion Corporation (NASDAQ:IMMR) has more in store beyond the previously announced cost cuts. BWS Financial also believes that Immersion will benefit from a new revenue stream as haptics are expected to be introduced in automobiles starting with 2024 models in late 2023.
According to Insider Monkey’s fourth quarter database, 19 hedge funds were long Immersion Corporation (NASDAQ:IMMR), compared to 13 funds in the last quarter. Ali Motamed’s Invenomic Capital Management is the largest stakeholder of the company, with 1.5 million shares worth $10.78 million.
Average Upside Potential Based on Analyst Ratings: 30.24%
Average Price Target: $3.25
OppFi Inc. (NYSE:OPFI) is a fintech platform that utilizes technology and artificial intelligence to enable banks to provide accessible lending products. OppFi Inc. (NYSE:OPFI)’s revenue of $120 million climbed 25.1% year-over-year, outperforming Wall Street estimates by $10.28 million. It is one of the best cheap software stocks to invest in.
On March 24, DA Davidson analyst Christopher Brendler maintained a Neutral rating on OppFi Inc. (NYSE:OPFI) and lowered the firm's price target on the shares to $2.50 from $3. Despite the company reporting "another relatively impressive quarter" and its initial 2023 guidance surpassing expectations, OppFi's credit remains a concern. The firm advised investors to wait for better visibility due to the increasing risk of a recession.
According to Insider Monkey’s fourth quarter database, 7 hedge funds were long OppFi Inc. (NYSE:OPFI), compared to 10 funds in the earlier quarter. Ben Levine, Andrew Manuel, and Stefan Renold’s LMR Partners is the biggest position holder in the company, with 1.4 million shares worth $2.85 million.
Average Upside Potential Based on Analyst Ratings: 38.39%
Average Price Target: $14.59
PagSeguro Digital Ltd. (NYSE:PAGS) offers financial technology solutions and services to consumers, individual entrepreneurs, micro-merchants, and small and medium-sized companies in Brazil and around the world. On March 2, PagSeguro Digital Ltd. (NYSE:PAGS) reported a Q4 GAAP EPS of R$1.24 and a revenue of R$3.96 billion, up 22.2% on a year-over-year basis, fueled by effective cost management even as revenue growth slowed. It is one of the best cheap software stocks to watch.
On March 28, Gabriel Gusan, an analyst at Citi, upgraded PagSeguro Digital Ltd. (NYSE:PAGS) from Neutral to Buy with an unchanged price target of $12. According to the analyst's research note, the shares have significantly underperformed since February, and as a result, they offer enough potential upside to warrant a Buy rating. Despite macroeconomic factors, churn, fixed pricing, and competition exerting pressure on PagSeguro Digital Ltd. (NYSE:PAGS)’s micro-merchant segment, the firm believes that the lack of guidance does not help on the visibility front. Nevertheless, Citi has upgraded the shares due to the stock's underperformance since February and virtually no changes to macro/micro since then.
According to Insider Monkey’s fourth quarter database, 25 hedge funds were bullish on PagSeguro Digital Ltd. (NYSE:PAGS), compared to 23 funds in the earlier quarter. Daniel Patrick Gibson’s Sylebra Capital Management is the largest stakeholder of the company, with 12.85 million shares worth $112.3 million.
Here is what Artisan Mid Cap Fund has to say about PagSeguro Digital Ltd. (NYSE:PAGS) in its Q1 2021 investor letter:
“We also reduced our position in PagSeguro. PagSeguro is making good progress establishing a fast-growing digital bank and expanding its Brazilian payments business despite the pandemic. However, the company’s growth initiatives will require another year of heavy investment spending in 2021. This comes as Brazil’s progress combatting COVID-19 trails many major economies’, casting a cloud over the broader economic outlook. Given these potential headwinds, we trimmed our position to fund higher conviction holdings.”
Average Upside Potential Based on Analyst Ratings: 63.66%
Average Price Target: $16.75
Adeia Inc. (NASDAQ:ADEA) is a global company that specializes in media and semiconductor intellectual property licensing. It operates as a licensing company that licenses its innovations to media and semiconductor industries and companies under the Adeia brand. On February 22, Adeia Inc. (NASDAQ:ADEA) reported a Q4 non-GAAP EPS of $0.41 and a revenue of $103.29 million, outperforming Wall Street estimates by $0.11 and $1.78 million, respectively.
According to Insider Monkey’s fourth quarter database, 17 hedge funds were bullish on Adeia Inc. (NASDAQ:ADEA), with collective stakes worth $112.2 million, compared to 4 funds in the prior quarter worth $31.3 million.
Aristotle Small Cap Equity Strategy made the following comment about Adeia Inc. (NASDAQ:ADEA) in its Q4 2022 investor letter:
“Adeia Inc. (NASDAQ:ADEA), is an intellectual property (IP) licensing business, focused on the media and semiconductor end markets. We inherited shares of Adeia via a spinoff from existing holding Xperi Holdings during the quarter. We maintain our investment in the company, as we assess the risk‐reward profile of the standalone business.”
Average Upside Potential Based on Analyst Ratings: 65.24%
Average Price Target: $64.20
Consensus Cloud Solutions, Inc. (NASDAQ:CCSI), together with its subsidiaries, provides information delivery services with a software-as-a-service platform worldwide. The company was incorporated in 2021 and is headquartered in Los Angeles, California. On February 27, JMP Securities analyst Joe Goodwin reiterated an Outperform rating on Consensus Cloud Solutions, Inc. (NASDAQ:CCSI) but trimmed the firm's price target on the shares to $60 from $70. The company's Q4 results were mostly below expectations, and its guidance was also lower than expected due to the current business environment affecting Consensus Cloud Solutions, Inc. (NASDAQ:CCSI). Customers have delayed buying decisions, resulting in a modest increase in cancellation rates, which the company assumes will remain elevated in 2023, the analyst wrote in a research note.
According to Insider Monkey’s fourth quarter database, 13 hedge funds were long Consensus Cloud Solutions, Inc. (NASDAQ:CCSI), compared to 16 funds in the prior quarter. Jeffrey Gates’ Gates Capital Management is the largest stakeholder of the company, with 1 million shares worth nearly $58 million.
In addition to Salesforce, Inc. (NYSE:CRM), ServiceNow, Inc. (NYSE:NOW), and Oracle Corporation (NYSE:ORCL), Consensus Cloud Solutions, Inc. (NASDAQ:CCSI) is one of the top software stocks to consider.
