1 Software Stock with Exciting Potential and 2 We Ignore

Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with explosive earnings growth, and the upward trend shows no signs of stopping as the industry has posted a 45.2% gain over the past six months, beating the S&P 500 by 28.9 percentage points.

However, only a handful of companies will ultimately thrive over the long term as the low barriers to entry for software businesses lead to fierce competition. Keeping that in mind, here is one software stock poised to generate sustainable market-beating returns and two that may face trouble.

Originally developed to address the growing complexity of IT security in the cloud era, Qualys (NASDAQ:QLYS) provides a cloud-based platform that helps organizations identify, manage, and protect their IT assets from cyber threats across on-premises, cloud, and mobile environments.

ARR growth averaged a weak 10.3% over the last year, suggesting that competition is pulling some attention away from its software

Anticipated sales growth of 8.9% for the next year implies demand will be shaky

Operating margin expanded by 3.4 percentage points over the last year as it scaled and became more efficient

Qualys is trading at $187.55 per share, or 8.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than QLYS.

With a mission to build software for the people that build the world, Procore Technologies (NYSE:PCOR) provides cloud-based software that enables owners, contractors, and other stakeholders to collaborate and manage construction projects from any device.

Why Are We Cautious About PCOR?

Estimated sales growth of 13.4% for the next 12 months implies demand will slow from its two-year trend

Suboptimal cost structure is highlighted by its history of operating margin losses

At $52.18 per share, Procore Technologies trades at 4.9x forward price-to-sales. Check out our free in-depth research report to learn more about why PCOR doesn't pass our bar.

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.

Billings growth has averaged 76.7% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases

Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently

PLTR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

Palantir Technologies's stock price of $190.60 implies a valuation ratio of 47.2x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it's free.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.