A basket of software stocks in the IBD 50 responded well to the stock market’s latest rally attempt and held up relatively well in Friday’s ugly retreat. Two of these issues are approaching buy points of new basing patterns.
Paylocity (PCTY), DoubleVerify (DV), Box (BOX) and KnowBe4 (KNBE) made solid moves as the stock market rallied early in the week.
Software Stock Paylocity
Paylocity, which is also an IBD Leaderboard member, ranks second in its 133-stock Computer Software-Enterprise group, sharing a 97 Composite Rating with top-ranked Model N (MODN), according to Stock Checkup. The group itself ranks No. 48 out of IBD’s 197 industries. It’s up from 125 three weeks ago and 148 six weeks ago.
PCTY stock also receives high marks for its 95 Relative Strength Rating and near-perfect 98 Earnings Per Share Rating.
The company offers a variety of workforce management software solutions. It targets businesses with fewer than 50 employees and stands apart from rivals, thanks to a network of partners that includes 401(k) advisers.
Earnings have risen an average 59% in the past three quarters, with a 74% jump in the latest period. Sales blew past expectations in the latest quarter, posting a 37% increase.
Company growth has been on a solid uptrend the past three years, with earnings posting a 32% average gain annually while sales grew 20%.
A look at Paylocity’s chart on MarketSmith shows a pattern that looks somewhat like a cup-with-handle base. But the base depth is a deeper-than-preferred 52% while the handle has dipped a more-than-ideal 17%.
Even so, a potential buy point is flashing at the top of an eight-week consolidation. The new entry of 276.98 was set on Aug. 8 when the stock peaked after an 82% surge off its June low.
The software stock slid during Friday’s stock market decline but its descent halted just below its 50-day moving average, a bullish sign.
Also on the positive side, Paylocity’s relative strength line is poking toward new high ground.
That feat, accomplished while the stock price is near a buy point, has set off a bullish relative strength line blue dot.
DoubleVerify: Top-Ranked In Enterprise Group
DoubleVerify leads the Computer Software-Special Enterprise group and is also a member of IBD Leaderboard.
DV stock has been running mostly along its 10-week moving average since June. The 95 Composite Rating and bullish Accumulation/Distribution Rating of “A-” is tops in its 40-member industry group.
The New York-based software provider, which came public last year, specializes in platforms to help advertisers evaluate the effectiveness of their spending campaigns.
Shares took a hit in Friday’s market sell-off but remain above their 50-day moving average. The RS line also remains near a new high.
Box Forms Cup Base
Box, which provides a cloud-based platform for organizations to manage their content, can be seen forming a cup base with a 31.38 buy point in its daily chart. The stock ranks first in its 26-stock Database-Computer Software group.
It fell below its 50- and 200-day moving averages on Friday, dropping 14% below the buy point. But its RS line, which measures price action against the S&P 500, remains near a new high.
This is a bullish sign so let’s watch for a rally that brings BOX stock back above its moving averages.
Software Stock KnowBe4’s Explosive Growth
Ranked third in the Computer Software-Security group, KnowBe4 has been making great strides, climbing from its August low of 13.79. Growth has been explosive, with earnings per share rising an average 294% the past three quarters and 282% the past three years.
The company, which came public in April 2021, develops cloud-based software that monitors and minimizes cybersecurity threats.
KNBE stock has rallied far above its 10-week moving average. What’s more, its 21-day exponential moving average is supporting a rally that’s approaching 25.23, the midpoint between its all-time high of 36.67 and May low of 13.78.
Let’s watch to see if it forms a new base above that point and offers a new entry.
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