This week, Goldman Sachs initiated coverage on several names in the emerging software space. Analyst Jesse Hulsing believes that an upcoming shift in the business will provide an opportunity for the leaders in the space.

Cash Flow Inflection

According to Hulsing, Goldman is looking for businesses with improving customer acquisition costs and the potential for multiple years of improving cash flow ahead. Hulsing pointed out that, among the SaaS and infrastructure growth names, those with more than 15 percent operating cash flow (CFO) margins are currently trading at a 40 percent premium to names falling short of that 15 percent CFO margin threshold.

“We see opportunity in investing in stocks where CFO margins are likely to improve meaningfully over the next two years […] helping to close this multiple gap,” he explained.

M&A On The Horizon?

Another catalyst in the SaaS space in 2016 could be…

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