Software companies offering growth at a reasonable price stand to gain in 2023, according to Morgan Stanley.
The difficult outlook for software stocks should continue into 2023, but companies offering growth at a reasonable price stand to gain and come out on top, according to Morgan Stanley. Software stocks suffered a dismal 2022 as rising interest rates brought down stocks with sky high price-to-earnings ratios. Multiples plummeted from record highs, stock prices crashed and investors rotated out of growth sectors in search of safety.
Weiss expects the company's expanding growth opportunities and solid unit economics to support more than 30% free cash flow growth in 2023 and 2024. "The nature of the company's subscription model gives us confidence in the durability of growth in the near-term, while ServiceNow's transition from System of Record in IT to System of Action bridging multiple systems across the enterprise significantly broadens the growth opportunity longer-term," Weiss said.
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