It's early into 2011, but we're already seeing a group of companies breaking out and stomping the general market. I've compiled a list of the top five performers in the software sector. Seeing which companies are rallying ahead of the pack might either show excellent execution from the businesses themselves, or a larger trend that could propel sub-industries forward.

In both cases, this can be extremely valuable. In the case of businesses executing, leaders in expanding fields can be discovered. In the case of larger trends, you can use the information to search out other stocks that are following the same trend, and might not have seen the same price appreciation. Call it buying into inevitable trends on the cheap.

Without further ado, here are the top five software performers so far in 2011:


Market Capitalization (Millions)

YTD Return

Glu Mobile (Nasdaq: GLUU)



TeleNav (Nasdaq: TNAV)



Sky-mobi (Nasdaq: MOBI)



MicroStrategy (Nasdaq: MSTR)



BroadSoft (Nasdaq: BSFT)



Source: Capital IQ, a division of Standard & Poor's. Screen is for companies with market capitalization in excess of $200 million. Returns are from Dec. 31, 2010 to May 27, 2011 and are adjusted for dividends.

Glu Mobile and Sky-mobi
What can we see from the list above? The first company that sticks out is Glu Mobile. The company designs mobile games that are popular on app stores. While Glu licenses popular franchises like Call of Duty and Guitar Hero from Activision-Blizzard (Nasdaq: ATVI), it jumped to the forefront of many investors' attention when it signed a partnership with chipmaker NVIDIA (Nasdaq: NVDA) to develop a set of Android games harnessing the capabilities of NVIDIA's powerful Tegra 2 processor. While traditional gaming studios search for a way to continue their dominance as consumer gaming spend moves to devices like tablets and smartphones, I wouldn't be surprised to see a major studio either make a run at buying Glu Mobile or start a tighter partnership.

Another intriguing company that makes the list is Sky-mobi. The company combines a couple buzzwords that are enough to get investors salivating. First of all, it operates in the exploding Chinese mobile market. Second, it controls application stores for mobile devices. In the U.S., there's no real pure-play on mobile apps. Both Google and Apple see their mobile fortunes strengthened by mobile apps, but they don't directly impact the bottom-line. The promise of Sky-mobi's ability to be a pure play on the app trend and its presence in a growth market, helped propel the company to a 335% gain between the start of the year and late April. However, general fears about Chinese stocks in the past couple months and a scathing research report from China scam-sleuths Citron Research that questioned the company's position as a leading application store. While finding hot opportunities in mobile and within China might sound exciting to investors, I'd stay away from this questionable company, which could be overrun by larger competitors and other disruptive technology.

When it comes to TeleNav, this 2010 IPO has been absolutely stomping analyst earnings. Just look at the chart below to see the company's wild outperformance in recent quarters.


Analyst Estimate

TeleNav Adjust Earnings

3rd Fiscal Quarter 2011 .18 .27
2nd Fiscal Quarter 2011 .17 .24
1st Fiscal Quarter 2011 .22 .29

Source: Thomson Reuters.

The past two quarterly shellackings of analyst estimates, which were released in late April and January respectively, caused the company to soar. In spite of recent company outperformance, analysts are only expecting the company to post adjusted earnings of 0.20 in the next quarter, which would be a drop from .024 the year before. Still trading at only 16 times earnings, there might be fuel left in TeleNav's growth rockets if it can put together another outstanding quarter and shock low-balling analysts.

BroadSoft and MicroStrategy
With BroadSoft and MicroStrategy we see two companies positioned in growing markets that have once again been stomping analyst expectations. In BroadSoft's case, the company creates a range Voice over IP (VoIP) applications in a single platform. Microsoft's costly $8.5 billion acquisition of Skype is illustrative of the demand for key VoIP technologies right now, so after beating analyst estimates by nearly 50% last quarter and nearly 50% the quarter before that, it's not surprising that BroadSoft makes the list of top performers.

In MicroStrategy's case, the company is in the red-hot business intelligence (BI) space. Despite recent earnings that were a dud, the company shocked analysts by posting adjusted earnings of $1.60 when the company was only expected to earn $0.93 earlier in the year. There's little doubt that the BI industry will only grow in importance in the coming years as companies gather and store more data and look for meaningful points of analysis from it. The doubt is that MicroStrategy can compete against large IT-titans like IBM that have moved into the space. By posting results like it did at the start of the year, MicroStrategy shows it's succeeding not only as a go-it-alone company, but is also potential buyout bait in a rapidly consolidating industry.

Keep updated with a watchlist
While none of the previous companies are formal recommendations, staying ahead of companies executing and in favorable industries can help you uncover more winners for the coming years. To stay updated on any of the companies mentioned in this article, make sure to add them to our new free My Watchlist feature today. You'll get up-to-date information on all the companies, and can also follow larger industries like software: