1 Software Stock on Our Watchlist and 2 We Find Risky

Software is rapidly reducing operating expenses for businesses. The undeniable tailwinds fueling SaaS companies have led to lofty valuation multiples historically, but rich prices also make re-ratings harder and place a ceiling on returns - over the past six months, the industry’s 1.1% gain has lagged the S&P 500 by 13.2 percentage points.

However, some businesses can support their premium valuations with superior earnings growth, and our mission at StockStory is to help you find them. With that said, here is one resilient software stock at the top of our wish list and two we’re swiping left on.

Two Software Stocks to Sell:

Domo (DOMO)

Market Cap: $377.9 million

Named for the Japanese word meaning "thank you very much," Domo (NASDAQ:DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.

Why Do We Steer Clear of DOMO?

1. Flat billings over the last year suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
2. Projected sales growth of 1.2% for the next 12 months suggests sluggish demand
3. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

Domo is trading at $9.02 per share, or 1.2x forward price-to-sales. If you’re considering DOMO for your portfolio, see our FREE research report to learn more.

Pegasystems (PEGA)

Market Cap: $10.12 billion

With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems (NASDAQ:PEGA) develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.

Why Are We Wary of PEGA?

1. 11.7% annual revenue growth over the last five years was slower than its software peers
2. Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
3. Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions

Pegasystems’s stock price of $59.63 implies a valuation ratio of 6.3x forward price-to-sales. Read our free research report to see why you should think twice about including PEGA in your portfolio.

One Software Stock to Watch:

Commvault (CVLT)

Market Cap: $5.36 billion

Born from the need to create ironclad protection in an increasingly dangerous digital world, Commvault (NASDAQ:CVLT) provides data protection and cyber resilience software that helps organizations secure, back up, and recover their data across on-premises, hybrid, and multi-cloud environments.

Why Do We Like CVLT?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 25.4% over the last year
2. Prominent and differentiated software results in a top-tier gross margin of 81.5%
3. Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale

At $123.10 per share, Commvault trades at 4.6x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

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