After rallying sharply this year, many high-growth software stocks have experienced a sudden drop. This week alone, names like Shopify (NYSE:SHOP), Twilio (NYSE:TWLO) and Paycom (NYSE:PAYC) have already fallen by double digits, on no news whatsoever. Considering the industry’s robust growth outlook, the bloodbath doesn’t seem justified.
In the wake of the sector selloff, these three names in the cloud software space remain a buy:
Palo Alto Networks: Cybersecurity Software Leader
Palo Alto Networks (NYSE:PANW)—widely considered the cream of the crop of the cybersecurity software industry—serves over 60,000 organizations in 150 countries, including 85 of the Fortune 100. Shares settled at $206.84 on Tuesday, giving it a market cap of $20.0 billion. While the stock is down 8% since Aug. 1, it is still up 10% year-to-date (YTD).
From a technical view, PANW needs to break above its 200-day moving average (DMA) close to the $215-mark in order to reclaim its bullish uptrend.
The Santa Clara, California-based cybersecurity firm reported fiscal fourth-quarter earnings per share (EPS) of $1.47 on Sept. 4, topping expectations for EPS of $1.42 and up 15% from earnings of $1.28 per share in the year-ago period. Revenue rose 22% year-over-year (YoY) to $805.8 million, surpassing forecasts of $803 million. The earnings beat was fueled by a strong increase in total billings, a key sales growth metric, which climbed 22% to $1.1 billion. CEO Nikesh Arora, a former top executive at Alphabet's Google and SoftBank Group who took over as chief executive in June 2018 said:
“We had a strong fourth quarter, surpassing a billion dollars in billings within the quarter for the first time, and achieving approximately 180% year-over-year growth in our newer Prisma and Cortex offerings.”
While the full-year fiscal 2020 guidance came in on the soft side, it projected better-than-expected billings and revenue growth through 2022. Taking all this into consideration, Palo Alto is in a prime position to be a leading name in the cybersecurity space in the years ahead.
Trade Desk: Rapidly Expanding Digital Ad-Buying Specialist
Trade Desk (NASDAQ:TTD) shares have fallen 38% since reaching an all-time high of $289.51 on Aug. 8. It closed at $210.06 last night, giving it a market cap of $9.45 billion. Despite the pullback, the stock has generated staggering returns so far this year, soaring 81%.
From a technical standpoint, shares are approaching key support near their 200DMA, which has acted as a level at which they have rebounded in the past.
The Ventura, California-based online advertising marketplace easily beat estimates on both the top and bottom lines when it released earnings for its fiscal second quarter on Aug. 8. Earnings per share totaled $0.95 in the period ended Jun. 30, blowing past expectations for EPS of $0.68 and up 58% from $0.60 in the same period a year earlier. Revenue surged 42% YoY to $159.9 million, above forecasts of $155.1 million.
The strong quarterly results were boosted by growing demand for its self-service software platform, where customers can buy and manage data-driven digital advertising campaigns.
As it continues to benefit from a burgeoning wave in digital ad-buying, the software-as-a-service (SaaS) company said it expects third-quarter revenue of $163 million, which would represent a YoY sales growth rate of 37%.
Okta: Fast-Growth Identity Managment Firm
Shares of Okta (NASDAQ:OKTA), one of the fastest-growing names in the cloud-based identity management software sector, have slumped 22% since Aug. 22. The stock ended at a three-month low of $107.22 yesterday, giving it a valuation of $12.5 billion. Despite the recent selloff, Okta’s stock is still up 68% since the start of the year.
From a technical perspective, the stock needs to stay above its key 200DMA close to the $96.99-level in the near-term to show that selling pressure has been exhausted.
The San Francisco-based cybersecurity firm posted better than expected results for its fiscal second quarter on Aug. 28, thanks to strong demand from large enterprises for its cloud-based identity and access management software. Customers with annual contracts valued at above $100,000 jumped 46% YoY to 1,222 in the three-month period ended Jul. 31.
Sales rose 49% from the same quarter a year earlier to $140.48 million, easily topping forecasts for revenue of $131.18 million. It lost $0.05 per share, better than expectations for a loss of $0.10 per share and narrowing losses from $0.15 per share in the year-ago period.
Okta's explosive growth is far from over: the cloud identity management provider is forecasting third-quarter revenue of $143 million to $144 million, representing YoY revenue growth of 35% to 36%. It also raised its full-year revenue guidance to $563 million, representing an annual growth rate of 41%.