With more people working from home now, software has become an important industry. But not all software stocks are great investments. For instance, when a Wall Street analyst downgrades a stocks and it is also rated a Sell in our POWR Ratings, this is definitely a stock to avoid. Five9 (NASDAQ:FIVN) and Medallia (NYSE:MDLA) are two such stocks and should be avoided right now.Software stocks have a reputation for being high-flyers. Add in the fact that the demand for software has never been greater, and it is easy to understand why big money gravitates to software stocks. A rising industry tide certainly tends to lift all boats, yet there are simply some software stocks that are unworthy of your hard-earned investing dollars.
Carefully sort through the software stocks that analysts have recently downgraded, and you will find some interesting names. It appears as though the analysts believe some software companies are overvalued and likely to suffer a meaningful decline.
Let's square our focus on two specific software stocks that were recently downgraded. Below, we delve into Five9 (FIVN) and Medallia (MDLA), both of which qualify as software stocks retail and institutional investors should avoid, at least in the short term.