Grab These 3 Mid-Cap Software Stocks on the Dip

Due to the emergence of the COVID-19 omicron variant, some states are imposing or re-imposing travel restrictions, leading to delays in some U.S. workers return to offices. The continuing remote lifestyle should reinforce small to large enterprises' reliance on software solutions. In addition, according to a Gartner report, the U.S. will lead in terms of remote workers in 2022, accounting for 53% of the U.S. workforce.

A better work-life balance and productivity, higher average annual income, and higher job retention have driven workers and organizations to opt for remote/hybrid work and lifestyles. Businesses are spending billions of dollars on software to upgrade and improve their business processes. As such, the global software market is expected to reach $823.71 billion by 2026, registering a 7.2% CAGR.

These factors have heightened investor optimism about the software industry, which is evident in the iShares Expanded Tech-Software Sector ETF's (IGV) 19.5% returns over the past year. So, we think it could be wise to bet on quality mid-cap software stocks Endava plc (DAVA), Amdocs Limited (DOX), and Datto Holding Corp. (MSP). They are currently trading below their 52-week highs and could witness significant upside in the coming months.

Click here to check out our Software Industry Report for 2021

Endava plc (DAVA)

With a market capitalization of $9.23 billion, DAVA is headquartered in London. The company is a technology service provider that serves clients in the consumer products, healthcare, mobility, and retail verticals in Europe, Latin America, North America, and internationally. DAVA offers solutions in three areas: digital evolution, agile transformation, and automation, and provides strategic software engineering services and solutions

In September, DAVA launched its ‘We Care’ sustainability report, which highlighted the positive impact of sustainability across its business and communities. This report should also help give the company's stakeholders a comprehensive view of its achievements and priorities.

During its fiscal first quarter, ended September 30, 2021, DAVA's revenue increased 55% year-over-year to £147.47 million ($195.43 million). The company's gross profit grew 60.1% from its  year-ago value to £52.69 million ($69.83 million). Its operating profit rose 105% from the prior-year quarter to £23.89 million ($31.65 million). And  the company's EPS increased 200% year-over-year to £0.36 ($0.48).

DAVA's revenue is expected to increase 37.6% year-over-year to $846.71 million in its fiscal 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to increase 28.9% in the current year. Furthermore, the stock has gained 115% in price over the past year and 95% year-to-date. It is currently trading 13.2% below its 52-week high of $172.41, which it hit on November 15, 2021.

DAVA's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

The stock has an A grade for Sentiment and a B grade for Momentum and Quality. We have also graded DAVA for Value, Stability, and Growth. Click here to access all DAVA's ratings. DAVA is ranked #12 of 60 stocks in the Software - Business industry.

Amdocs Limited (DOX)

DOX, which is headquartered in Saint Peter Port, in the Channel Islands, is a software services provider that provides solutions to the communications, PayTV, entertainment, and media industry. The company's services include managed services, digital business operations, quality engineering services, cloud services, consulting services, and integration services. The company has a market capitalization of $9.13 billion.

This month, DOX and Giesecke+Devrient (G+D), a provider of connectivity and subscription management solutions, collaborated to provide Orange Belgium's enterprise customers with the ability to order, activate and manage embedded SIM (eSIM) on their employees' devices. Through this collaboration, the companies will provide a completely digital enterprise customer journey for all devices.

DOX's revenue increased 3.3% year-over-year to $1.09 billion in its fiscal fourth quarter, ended September 30, 2021. The company's operating income grew 5% from its year-ago value to $154.33 million. Its net income was  $123.53 million. Also, the company's EPS amounted to $0.97 during the period.

Analysts expect DOX's revenue for its fiscal 2022 to be $4 billion, representing 5.8% growth year-over-year. Also, its EPS is expected to grow 8% in the current year. Its stock price has increased 8.4% over the past year. It is currently trading 12.5% below its 52-week high of $82.38, which it hit on October 26, 2021.

DOX's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Momentum, Quality, and Value.

In addition to the POWR Rating grades I have just highlighted, one can see DOX's ratings for Stability, Sentiment, and Growth here. DOX is ranked #4 in the Software - Business industry.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in DOX for a 25% gain. Learn more about the RTR service here.

Datto Holding Corp. (MSP)

With a market capitalization of $4.05 billion, MSP in Norwalk, Conn., is a cloud-based software that provides solutions through the managed service provider (MSP) to small and medium businesses (SMBs). Its Unified Continuity products include Business Continuity and Disaster Recovery, Cloud Continuity, SaaS Protection, Workplace, and File Protection. Its networking products comprise access points and edge routers. MSP's business management products include Autotask Professional Services Automation and remote monitoring and management.

In October, MSP unveiled SaaS Defense, an advanced cyber threat protection product. This technology should help small and medium businesses to stay safe by blocking the attack vector email across the entire Microsoft 365 suite.

MSP's total revenue increased 20.8% year-over-year to $157.89 million for the third quarter ended September 30, 2021. The company's gross profit grew 18.3% from its  year-ago value to $112.14 million. And its income from operations came in at $15.77 million. Also, the company's net income amounted to $13.49 million during the period.

For its fiscal year 2021, analysts expect MSP's revenue to increase 18.9% year-over-year to $616.82 million. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The company's EPS is estimated to increase 18.5% in the current year. The stock has gained 6.8% in price over the past month. It is currently trading 18.4% below its 52-week high of $30.42, which it hit on December 22, 2020.

It is no surprise that MSP has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Sentiment and Stability.

Click here to see the additional POWR Ratings for MSP (Growth, Value, Momentum, and Quality). MSP is ranked #28 of 168 stocks in the Software-Application industry.

Click here to check out our Software Industry Report for 2021

DAVA shares were trading at $144.30 per share on Monday afternoon, down $5.39 (-3.60%). Year-to-date, DAVA has gained 88.01%, versus a 26.32% rise in the benchmark S&P 500 index during the same period.

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.

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