2 Super Software Stocks Down 37% and 57% You'll Regret Not Buying on the Dip
Software companies have a unique business model. They carry a high gross profit margin, which means they can spend significant amounts of money on operating costs like sales and marketing to drive growth, even if it means a loss on the bottom line. Theoretically, they can cut those operating costs once the business achieves scale, which would swing the business into profitability.
Investors supported that strategy for years -- from venture capitalists at the start-up phase, to everyday investors after an initial public offering. But everything changed in 2022 when inflation soared and the U.S. Federal Reserve rapidly increased interest rates.
The cost of capital skyrocketed, and investors pulled away from tech companies that were losing money, fearing they wouldn't be able to attract further cash infusions. Those conditions sent software stocks plunging, and many are still trading significantly below their all-time highs.
Source Fool.com
