Going into 2011, many had expected business software to be a strong sector. With the global economy rebounding, it seemed likely that businesses would again be investing heavily in their workforces, but based on results reported last night, I'm inclined to think otherwise.

JDA Software (Nasdaq: JDAS) reported figures after the bell last night which fell far from the mark and signaled continuing struggles in Europe as one of the main culprits. The truly scary thing about what JDA reported was that its margin constriction was not only due to customers holding back, but also to a generally poor macroeconomic environment in Europe. For those out there hoping this was merely a JDA problem, it's time we begin to think otherwise. It appears that the financial instability seen in the European Union is beginning to spill over into individual businesses.

Also reporting figures after the bell last night was smaller rival Manhattan Associates (Nasdaq: MANH). The company reported mixed guidance much like JDA, expecting earnings to come in ahead of expectations but issuing light revenue guidance. The concern with Manhattan Associates is its license revenue declined by 11% year-over-year, something completely unexpected in what should be a rebounding sector.

To add fuel to the fire, last week Amdocs (NYSE: DOX) reported quarterly earnings estimates that missed Wall Street's expectations, which it blamed on higher expenses.

Now what?
I wouldn't go so far as to say it's time to bury our heads in the sand, but this is a trend that bears watching. So where should your money be in the business software sector? I'm inclined to say on the sidelines, until we get a clearer picture from the rest of the sector.

But if you are looking for a company whose growth could overcome general sector weakness, Ebix (Nasdaq: EBIX) may be for you. Ebix is projected to grow by 10% over the next five years and trades at a forward price-to-earnings multiple of just 16 with an incredible 33% return on equity. Ebix has recently relied on growth by acquisition, which could shield it from the economic fallback many of its competitors are suffering through. Still, it would be wise to wait for Ebix's mid-March quarterly report before jumping into a potentially troubled sector. 

What's your take on the business software sector? Is this a trend worth worrying about or am I blowing smoke? Let's hear your take in the comments section below!

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