Software Stocks Upate: September 2005

The Software Stock Index was down 0.9% in September compared to the NASDAQ's 0.0% flat line.  The average stock was actually up 3.0% indicating the small caps had a much better month than big caps.  In fact if it wasn't for a 6% loss by Microsoft, the whole sector would have been up 1.9%.  As it was, the best performing sectors were Operating Systems (+34%) led by Redhat's surge on positive earnings, Content  Management (+16.1%)  thanks largely to Convera's continued speculative ascent, and Customer Relationship Managment (+12.2%) thanks largely to Siebel's jump on Oracle's takeover bid and resulting sympathy rallies from CRM and RNOW.

The worst performing sector was Microsoft (-6%), a sector all to itself given that it comprises 1/3 of the software market's $776BN in market cap. Databases (-4%), led by Oracle's decline on disappointing earnings, was the second worst performing sector while PC-Based Financial Services Software declined 2.2% due exclusively to a bit of weakness in Intuit.

From a valuation standpoint, the weigthed average average Price/Sales was 4.6X and the weighted average P/E was 26.5.

On the M&A front, the software industry continued to consolidate with the acquisitions of Nuance and Aspect Communications closing as well as a number of new bids being announced.  Since the beginning of 2004 for every new software company that has gone public, 6 companies have either been acquired or have gone out of business.

For a detailed breakdown of all the stock statistics including a record of all of the M&A in the space, click here to download an Excel spreadsheet with the data and click here to get Microsoft's automatic stock quote downloading plug-in for Excel if you don't already have it.

I have improved the spreadsheet this month with a more fundamental financial data and ratio's for about 85% of the companies in the index.