As the artificial intelligence craze evolves, driving up growth for chipmakers such as Broadcom and Nvidia , investors should also consider software companies seeing strong fundamentals despite high interest rates. Canaccord Genuity ran a screen of about 147 software companies, and only four had revenue growth of 25% or more forecast for the next 12 months and at least 50% incremental free-cash flow, or FCF, margins over the trailing 12 months. Here are some of Canaccord's "best of both worlds" picks: GitLab was among the four top names on the list.
The company had a trailing last 12-month incremental FCF margin of some 93% and 25% of forecast growth in the next 12 months. While the stock has fallen almost 16% this year, Canaccord sees growth ahead. Citing GitLab's ability to continue generating revenue growth, the investment bank expects operating leverage to materialize as the company "scales into what is a large software deployment market.
" Cannacord has a price target of $65 on GitLab, which implies about 22% upside from Monday's close. Called one of the high-quality names in Canaccord's screen, Monday.com had a trailing incremental FCF margin of 91% and projected revenue growth of 28%.
Canaccord cited high non-GAAP gross margins, durable growth and healthy FCF leverage over the trailing 12 months as drivers of Monday's "best-in-class" incremental FCF. The stock today trades at a 9.3 multiple of 2025 enterprise value to revenue and 38 times enterprise value to FCF, Canacc.
