Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 12% over the past six months. This performance is a stark contrast from the S&P 500’s 8.2% gain.
A cautious approach is imperative when dabbling in these businesses as the best will deliver robust earnings growth while the rest will be disrupted by competition and AI. Keeping that in mind, here is one software stock boasting a durable advantage and two we’re steering clear of.
Two Software Stocks to Sell:
DocuSign (DOCU)
Market Cap: $11.55 billion
Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ: DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.
Why Are We Cautious About DOCU?
- ARR growth averaged a weak 8.4% over the last year, suggesting that competition is pulling some attention away from its software
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.7%
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $58.10 per share, DocuSign trades at 3.5x forward price-to-sales. Check out our free in-depth research report to learn more about why DOCU doesn’t pass our bar.
RingCentral (RNG)
Market Cap: $2.35 billion
Built on its proprietary Message Video Phone (MVP) platform that unifies multiple communication methods, RingCentral (NYSE: RNG) provides AI-driven cloud communications and collaboration solutions that enable businesses to connect through voice, video, messaging, and contact center services.
Why Do We Steer Clear of RNG?
- Average billings growth of 4.2% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 4.3% for the next 12 months implies demand will slow from its two-year trend
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
RingCentral is trading at $27.49 per share, or 1x forward price-to-sales. If you’re considering RNG for your portfolio, see our FREE research report to learn more.
One Software Stock to Buy:
Palantir Technologies (PLTR)
Market Cap: $399.2 billion
Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ: PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.
Why Do We Love PLTR?
- Billings growth has averaged 52.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Strong free cash flow margin of 51.2% enables it to reinvest or return capital consistently
Palantir Technologies’s stock price of $167.70 implies a valuation ratio of 75.7x forward price-to-sales. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. 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).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
