It's been a brutal six months for investors in software-as-a-service (SaaS) stocks. Even the best SaaS companies, growing rapidly and producing real profits, have seen their stocks tumble. The sky-high valuation multiples awarded to software stocks during the pandemic appear to be a thing of the past as interest rates rise and recession fears grow.

Cloudflare (NET 0.77%) and Autodesk (ADSK -0.12%) are two SaaS stocks I've got my eye on. I think they're still too expensive, but if this sell-off continues, I'll be happy to add both to my portfolio at lower prices.

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Image source: Getty Images.

Cloudflare

Cloudflare is the go-to company for protecting and speeding up websites, but what I really like about the company is its developer platform. Built on top of its global edge network, Cloudflare offers the building blocks for application development.

The core of the platform is Cloudflare Workers, a service that allows developers to run chunks of code close to users. Scaling happens automatically; there are no servers to deal with; and pricing doesn't break the bank. Static assets and websites can be hosted with Cloudflare Pages, which integrates neatly with Workers.

Modern web applications need to handle data, and Cloudflare is rapidly growing the capabilities of its platform in that regard. Cloudflare R2 is the company's object-storage product, allowing quick access to arbitrary data via Workers, and Cloudflare D1 is the company's first database product. D1 takes the ultra-popular SQLite database and supercharges it with cloud-based powers.

While Cloudflare's developer platform isn't for everyone, the company has the potential to become a major player in the cloud-infrastructure market. Amazon Web Services (AWS) has far more features, but it's also far more complicated than Cloudflare's platform. Cloudflare is betting that simplicity and lightning-fast performance are valuable to developers.

Cloudflare's opportunity is enormous, but the stock is still overheated. A price-to-sales ratio over 20 is just too much to pay, in my opinion, so I'll be waiting for a lower price to jump on board.

Autodesk

Autodesk is the leader in software for designers and makers. AutoCAD is its best-known product, but the company also offers a vast portfolio of software aimed at engineers, architects, product designers, and the media industry.

Autodesk is now a subscription-only company, and the results of that transition have been stupendous. Revenue was up 16% in fiscal 2022 to $4.39 billion, and free cash flow jumped to $1.48 billion. Both metrics have surged over the past four years as the subscription business model took root.

Autodesk serves the construction industry, which is prone to booms and busts. A recession isn't going to be kind to that industry, so Autodesk will almost certainly feel some pain. Subscriptions should smooth things out a bit compared to the software licenses Autodesk used to sell, but it's hard to know how resilient Autodesk will be in a recession.

In the long run, Autodesk's dominance probably isn't going away. Some of the company's products are industry-standard solutions, and switching costs are astronomical for professionals trained on its software. Autodesk is never going to be a hypergrowth company, but double-digit annual revenue growth on average is doable.

Autodesk is valued at around $41 billion, or roughly 30 times free cash flow. That's a little rich for me, given that free cash flow could dip considerably in a tough economic environment. With its immense competitive advantages, Autodesk certainly deserves a premium valuation. But I'll hold off for now and wait for a better price.