As the year is winding down, it’s a time when many investors scout for the next big investment opportunities that can fetch them market-beating returns.
An analyst at JPMorgan delved into the potential effect of a rising interest rate environment and inflation on the software sector, and named three software picks for 2022 that are poised for accelerated growth.
Higher Rates Could Compress Valuation
Since 2019, interest rates have been more impactful on software valuations, as prices have hit all-time highs, analyst Sterling Auty said.
Fed rate hikes and any corresponding rise in the 10-year treasury could have negative impacts on software returns in 2022, he added.
Growth Key for Software Valuation
The number one determinant of software valuation is growth, especially in the current market, Auty said. Questions remain over whether growth rates can be sustained at a tolerable level to keep valuations propped up, he added.
This is evident from the 42 percent drop in shares of DocuSign, Inc. (NASDAQ:DOCU) when growth slows abruptly, the analyst noted.
3 Growth Stocks For 2022
Zoom Video Communications, Inc. (NASDAQ:ZM) will turn the corner and show growth acceleration, especially in the second-half of 2022, Auty said.
Procore Technologies, Inc. (NYSE:PCOR) is helping drive the digital transformation in the construction industry, the analyst noted. As construction picks up, the company is likely to see an improvement in top-line growth, he added.
Intapp, Inc.’s (NASDAQ:INTA) cloud transition is in full force with Cloud Annual Recurring Revenue (ARR) growth at 56.5 percent in the most recent quarter, Auty said. There is plenty of room for upside through the rest of fiscal-year 2022, he added.
Even with that growth, Intapp’s shares trade at a wide discount to its peers, the analyst noted.
By Shanthi Rexaline
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