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 capped returns lately as the industry’s six-month gain of 11.2% has trailed the S&P 500’s 21%.
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. With that said, here are three software stocks we think can generate sustainable market-beating returns.
Zscaler (ZS)
Market Cap: $52.42 billion
Pioneering the "zero trust" approach that has fundamentally changed enterprise network security, Zscaler (NASDAQ: ZS) provides a cloud-based security platform that connects users, devices, and applications securely without traditional network-based security hardware.
Why Do We Love ZS?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Strong free cash flow margin of 27.2% enables it to reinvest or return capital consistently
At $330.29 per share, Zscaler trades at 15.8x 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.
Palo Alto Networks (PANW)
Market Cap: $149.1 billion
Founded in 2005 by security visionary Nir Zuk who sought to reimagine firewall technology, Palo Alto Networks (NASDAQ: PANW) provides AI-powered cybersecurity platforms that protect organizations' networks, clouds, and endpoints from sophisticated threats.
Why Is PANW Interesting?
- Solid 22% annual revenue growth over the last five years underscores its software’s appeal to businesses
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- PANW is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Palo Alto Networks’s stock price of $219.45 implies a valuation ratio of 14.9x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Olo (OLO)
Market Cap: $1.74 billion
Processing over two million orders daily across 80,000 restaurant locations nationwide, Olo (NYSE: OLO) provides an enterprise-grade SaaS platform that powers digital ordering, delivery, and payment systems for restaurant brands across the United States.
Why Are We Positive On OLO?
- Market share has increased as its 24% annual revenue growth over the last two years was exceptional
- Winning new contracts that can potentially increase in value as its billings growth has averaged 23.4% over the last year
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
Olo is trading at $10.26 per share, or 5.9x trailing 12-month price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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