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From commerce to culture, software is digitizing every aspect of our lives. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the last six months, the industry’s 42.4% return has topped the S&P 500 by 26.5 percentage points.

Although these businesses have produced superior results, only the best will survive over the long term as AI is eating into the profits of those with lower switching costs. With that said, here are three software stocks we’re passing on.

Jamf (JAMF)

Market Cap: $1.98 billion

Founded in 2002 by Zach Halmstad and Chip Pearson, right around the time when Apple began to dominate the personal computing market, Jamf (NASDAQ:JAMF) provides software for companies to manage Apple devices such as Macs, iPads, and iPhones.

Why Are We Hesitant About JAMF?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 9.9% average billings growth is weak

2. Persistent operating losses suggest the business manages its expenses poorly

3. Low free cash flow margin of 4.9% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $15.30 per share, Jamf trades at 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than JAMF.

DocuSign (DOCU)

Market Cap: $19.57 billion

Founded by Seattle-based entrepreneur Tom Gonser, DocuSign (NASDAQ:DOCU) is the pioneer of e-signature and offers software as a service that allows people and organisations to sign legally binding documents electronically.

Why Are We Cautious About DOCU?

1. Offerings struggled to generate meaningful interest as its average billings growth of 7.1% has underwhelmed

2. Software platform has low switching costs as its net revenue retention rate of 99% demonstrates high turnover

3. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

DocuSign’s stock price of $96.94 implies a valuation ratio of 6.5x forward price-to-sales. To fully understand why you should be careful with DOCU, check out our full research report (it’s free).

RingCentral (RNG)

Market Cap: $3.15 billion

Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.

Why Do We Think Twice About RNG?

1. Average billings growth of 9.6% was subpar, suggesting it’s struggled to push its software and might have to lower prices to stimulate demand

2. Customers churn often due to the commoditized nature of its software, as reflected in its 99.1% net revenue retention rate

3. Estimated sales growth of 7.1% for the next 12 months implies demand will slow from its three-year trend