Most undervalued software stocks

Screening Filters

1. PriceBelowMA200

   • Purpose: Focus on software stocks trading below their 200-day moving average.
   • Rationale: This is a common way to identify stocks that may be out of favor or trading at a discount relative to their longer-term trend, which can be a starting point for undervaluation analysis.

2. Sector: Software & IT Services

   • Purpose: Limit the screen to software names.
   • Rationale: The user specifically asked for software stocks, so this keeps the results relevant and avoids unrelated sectors.

3. Industry: Software & IT Services

   • Purpose: Narrow the universe further to companies directly operating in software and related IT services.
   • Rationale: This improves precision by excluding broader tech companies that may not be primarily software businesses.

4. Free Cash Flow TTM > 0

   • Purpose: Require positive trailing twelve-month free cash flow.
   • Rationale: Companies generating cash are often better candidates for undervaluation because the market may be underappreciating a real earnings/cash-generating business rather than a speculative story.

5. Debt/Equity <= 1.5

   • Purpose: Avoid overly leveraged companies.
   • Rationale: Excessive debt can make a stock look cheap for the wrong reason. This filter helps favor financially healthier software companies with less balance-sheet risk.

6. Quarter Revenue YoY Growth >= 0

   • Purpose: Require at least non-negative quarterly revenue growth.
   • Rationale: This helps ensure the business is not shrinking, which is important when looking for undervalued stocks that still have some fundamental momentum.

7. Annual Revenue YoY Growth >= 0

   • Purpose: Require at least non-negative annual revenue growth.
   • Rationale: Confirms that the company is not in a long-term revenue decline, improving the quality of the value screen.

8. P/E TTM <= 20

   • Purpose: Look for stocks with a modest earnings multiple.
   • Rationale: A lower P/E can indicate the market is pricing the company conservatively relative to its earnings, which aligns with the idea of undervaluation.

9. P/S Ratio <= 5

   • Purpose: Screen for relatively inexpensive revenue valuations.
   • Rationale: Software companies often trade on sales when earnings are noisy, so a restrained price-to-sales ratio helps identify names that may be underpriced versus their revenue base.

10. EV/EBITDA <= 20

    • Purpose: Include a broader valuation measure that accounts for debt and cash.
    • Rationale: This adds another check on cheapness from an enterprise-value perspective, making the screen more robust than using P/E alone.

Why Results Match:

• The screen targets software companies specifically, matching the user’s requested universe.
• It combines value metrics (P/E, P/S, EV/EBITDA) to find stocks that may be priced below their fundamentals.
• It adds quality and stability filters like positive free cash flow and manageable debt, so the results are not just “cheap,” but potentially undervalued for sound reasons.
• Requiring non-negative revenue growth helps avoid declining businesses that appear cheap only because of deteriorating fundamentals.
• Trading below the 200-day moving average can further highlight names that are out of favor and may offer a valuation opportunity if fundamentals remain solid.

Overall, these filters are designed to find software stocks that look inexpensive relative to earnings, sales, and enterprise value, while still showing reasonable financial health and growth.