The S&P 500 broke out to new all-time highs this week, yet somehow the PureFunds ISE Cyber Security ETF (HACK) is down more than 18% in the past year.
What Happened to Cybersecurity Stocks?
The cyber world is as dangerous as it has ever been. New threats are constantly popping up. There is certainly plenty of business in the cybersecurity world.
So how is it that many top cybersecurity stocks are down so much in the past year?
Cybersecurity stocks have been a painful reminder that on Wall Street, performance is always relative. According to a new report by Cybersecurity Ventures, global cybersecurity spending is expected to exceed $1 trillion from 2017 to 2021.
Unfortunately, the market was well aware of the potential market when share prices exploded skyward back in 2014. The growth bar was set so incredibly high for many of these cybersecurity stocks that any subsequent hiccups have been met with intense selling in the market.
Even today, the bar is extremely high when it comes to the valuations of some of the top cybersecurity stocks. But this high bar simply means that investors need to be even more careful when choosing the best investments.
Palo Alto Networks Inc (PANW)
PANW is one of the most well-known cybersecurity stocks in the market, but it has certainly not escaped the selling pressure in recent months. PANW stock is down 32.6% in the past year and is down 27.3% so far in 2016.
Yet despite the market pessimism, Finviz projects 40.9% annual earnings growth for PANW over the next five years as the company takes a large slice of that $1 trillion pie.
Growth is the main reason why Goldman Sachs analyst Gabriela Borges set a “buy” rating on PANW earlier this year. The analyst said that its “growth-adjusted valuation is compelling given the significant runway ahead in network security and in new markets.”
Fortinet Inc (FTNT)
FTNT stock is also down 19% in the past year. Borges believes traders should be buying on the dip. Borges praised the stock for its improving free cash flow and stable business fundamentals.
Bank of America also reiterated a “buy” rating on FTNT earlier this month. The firm said that the company’s fiscal 2016 growth goals are well within reach.
In addition to analyst blessings, FTNT also has the advantage of business diversification. Some cybersecurity stocks are exclusively network security providers. FTNT can provide virtual and real security solutions in networked, application and mobile environments.
Splunk Inc (SPLK)
SPLK is far from a typical cybersecurity stock, but it may be the single best play on the space.
SPLK is mostly known as a big-data company. The company specializes in analyzing, searching, sorting and interpreting machine-generated data.
However, SPLK’s 2015 acquisition of security company Caspida has allowed SPLK to use its machine data analytics capabilities to detect and eliminate cybersecurity threats.
SPLK stock is down more than 19% in the past year, but the company seems poised to be a major player in both big data and cybersecurity for years to come.
As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.