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But one Wall Street analyst thinks a special breed of software companies are well positioned to withstand choppy stock market conditions.
In a note published Sunday, Evercore ISI analyst Kirk Materne flagged a group of software companies and compared them to February 2016 levels - that's when the stock market reached a short-lived low point amid uncertainty and fear.
"We believe that when it comes to software investing, times of macro stress and market volatility have usually ended up being good buying opportunities," Materne wrote, adding that investors who look past the "noise in prior crises have generally been rewarded," three to six months later.
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The key? Many companies in the software sector have built businesses based on recurring revenue, giving the businesses a "durability" that's now well-understood by investors, Materne wrote.. The top 25 software companies today have 69% of their revenue from recurring business customers, compared to 42% 10 years ago, he said.
Materne highlighted software companies with estimated growth of more than 20% in the upcoming years. Those stocks tend to have an enterprise value of around 5x their revenue. And as their revenues grow, so will their valuations.
Here are 18 high-growth software companies to keep on your radar:
Analysts expect Carbon Black (CBLK), which went public this year, to grow its revenues by 22.7% in 2019 and 24.3% in 2020. Its enterprise value— a slightly different figure from market capitalization — is 2.6x its estimated revenue over the next twelve months. Materne thinks that multiple could reasonably grow to 5x.
Box
Box (BOX) has had a rough time on the stock market in recent months, and is trading down 10% from a year ago, but its revenues are still slated to grow 20.9% and 17.7% in 2019 and 2020, respectively. The company's enterprise value is 3.7x its estimated revenue over the next twelve months, and Materne thinks it could reasonably grow to a 5x multiple.
Rapid7
Rapid7 (RPD) is up 80% from where it traded a year ago. With 20% revenue growth expected in 2019 and 22.3% growth expected in 2020, the company could continue to see its valuation grow. Its enterprise valuation is curretly 5.2x its estimated revenue over the next twelve months
Mimecast
Mimecast (MIME) is up 19.3% from where it traded last year, and could continue to grow thanks to revenue growth estimates of 22.4% and 23.1% in 2019 and 2020, respectively.
Currently, its enterprise value is 5.2x its estimated revenue over the next twelve months.
Proofpoint
Proofpoint (PFPT) is up 12.1% from where it traded last year, and could see growth of 27.1% and 25.1% in 2019 and 2020, respectively.
The company's enterprise value is 6.4x its estimated revenue over the next twelve months.
Zuora
Zuora (ZUO), which went public this year, is expected to grow its revenue 27.1% and 24.1% in 2019 and 2020, respectively. Its enterprise value is 6.7x its estimated revenue over the next twelve months.
Splunk
Splunk (SPLK), which is up 23.6% since last year, could grow its revenue by 24.8% and 23.4% in 2019 and 2020, respectively. Its enterprise value is 7.1x its estimated revenue over the next twelve months.
DocuSign
DocuSign (DOCU), which went public this year, is expected to grow its revenue 24% and 18.9% in 2019 and 2020, respectively. Its enterprise value is 7.4x its estimated revenue over the next twelve months.
Salesforce
Salesforce (CRM), whose shares are trading up 41.6% since last year, is expected to grow its revenues 20.6% and 19.6% in 2019 and 2020, respectively. Its enterprise value is 7.5x its estimated revenue over the next twelve months.
New Relic
New Relic (NEWR) is up 47.3% from last year, and its revenues are expected to grow 26.5% and 24.4% in 2019 and 2020, respectively. Its enterprise value is 8.5x its estimated revenue over the next twelve months.
HubSpot
HubSpot (HUBS), which is up 45.1% from last year, is expected to grow its revenue 24.9% and 23.3% in 2019 and 2020, respectively. Its enterprise value is 8.5x its estimated revenue over the next twelve months.
Zendesk
Zendesk (ZEN), which is up 80.3% from last year, is expected to grow its revenue by 30.5% in 2019 and 2020. Its enterprise value is 8.6x its estimated revenue over the next twelve months.
Workday
Workday (WDAY) is up 24.5% since last year, and its revenue is expected to grow 25.3% and 22.3% in 2019 and 2020, respectively. Its enterprise value is 9.5x its estimated revenue over the next twelve months.
Twilio
Twilio (TWLO) is up a whopping 214.5% since last year, and its revenue is expected to grow 27.6% and 29.5% in 2019 and 2020, respectively. Its enterprise value is 9.5x its estimated revenue over the next twelve months.
ServiceNow
ServiceNow (NOW), which is up 39.8% from last year, is expected to grow 29% and 27.1% in 2019 and 2020, respectively. It has an enterprise value of 10.3x its estimated revenue over the next twelve months.
Okta
Okta (OKTA) is up 112% from last year, and is expected to grow its revenue 33.7% and 32.7% in 2019 and 2020, respectively. Its enterprise value is 12.6x its estimated revenue over the next twelve months.
Zscaler
Zscaler (ZS), which went public this year, is expected to grow its top line by 32.7% and 29.9% in 2019 and 2020. Its enterprise valuation is 14.3x its estimated revenue over the next twelve months.
Atlassian
Atlassian (TEAM), which is up 78.8% from last year, is expected to grow revenues 28.9% and 26.1% in 2019 and 2020, respectively. Its enterprise value is 14.6x its estimated revenue over the next twelve months.
