As the scope of IT expands, cybersecurity stocks and the field of online security come more into focus. Once confined to PCs, online security now has become critical for mobile devices, cloud platforms and data centers. Once 5G becomes commonplace, cybersecurity will become necessary to yet another new set of systems.
As the need for security expands and becomes emphasized by well-publicized security breaches, it naturally draws the attention of the investment community. Daniel Ives, a long-time equity research analyst, newly hired by Wedbush Securities, is among these investors. Ives recently released a list of cybersecurity stocks to which he gave an “outperform” rating.
Although several cybersecurity stocks received this rating, the following three stocks to buy stand out as future drivers of online security — with future gains for investors to match:
Check Point Software Technologies, Ltd. (CHKP)
Based in Israel, Check Point Software (NASDAQ:CHKP) sells both hardware and software for network-security business users throughout the world. The equity currently trades at around $113 per share. Wedbush initiated a 12-month price target of $140 per share on CHKP stock.
Since its founding in the early 1990s, Check Point has acted as a generalized cybersecurity company. Its hardware firewalls have helped to entrench the company within many global organizations. CHKP’s U.S. business has previously suffered from uneven execution. Still, Wedbush believes its U.S. business has finally begun to take off through hiring new reps and improved sales efforts.
CHKP stock has found itself range-bound for the last two years. Like other tech stocks, it reached a peak — $120.81 — in mid-September before pulling back. However, it trades only about 7% below its 52-week high, so it has not seen as much of a decline as many other tech stocks.
The low P/E ratio of CHKP stock may also explain the muted decline. Currently, CHKP trades at about 19.8 times earnings. This seems low considering that other cybersecurity stocks trade at much higher multiples.
Profit growth rates also appear steady. Analysts forecast profits increasing by 6.4% this year. They also believe this growth rate will rise to 8.3% next year. While that remains in the single-digits, the low P/E and the improved outlook for U.S. growth should give CHKP stock the catalyst it needs to move out of its trading range and reach the $140 price target forecasted by Wedbush.
CyberArk Software, Ltd. (CYBR)
CyberArk Software (NASDAQ:CYBR) currently trades at around $71 per share. Wedbush gave it a 12-month price target of $85 per share.
CyberArk specializes in privileged access management (PAM) software. One challenge in the cybersecurity field involves protecting the identities and credentials of privileged account users. The company sees this as both a critical and often ignored avenue by which hackers can breach security systems. To counter this, CyberArk creates software to address both the internal and external threats related to these credentials.
Wedbush believes the company has obtained a leadership position in this niche. They also estimate this market has only seen a 5% penetration rate.
CyberArk currently supports a P/E ratio of just under 48. While that may appear expensive compared to the S&P 500, investors may take an interest due to the company’s profit growth. Analysts believe the company will grow its profits by 26.7% this year. They also think that the growth rate will hold and possibly improve in the years to come. The five-year estimate for average annual growth comes in at 29.3%.
The CYBR stock price has also increased as a result. It rose from just above $40 per share around the new year and peaked at $81.24 in September, not far from Wedbush’s target. It has since retreated to around the $70 per share range. However, with its $2.5 billion market cap, its massive growth, and its leadership in a vital security niche, the run for CYBR stock has probably just begun.
Palo Alto Networks, Inc. (PANW)
Wedbush chose Palo Alto Networks (NYSE:PANW) as another outperform in the cybersecurity space. The stock trades at just below $200 per share currently. Wedbush initiated a 12-month price target of $225 per share for PANW stock.
PANW’s next generation firewall products protect cloud networks. As such, their business has grown with the cloud. PANW boasts over 54,000 customers around the world, including 85% of the Fortune 100. In 2017, Fortune rated Palo Alto as one of the “50 companies changing the world.”
The growth figures, both from the past and from projections, both reflect this success. The company saw average an annual profit growth rate of 79.2% per year over the last five years. While analysts believe that average annual growth will slow to 30.6% per year for the next five, they will remain among the fastest-growing cybersecurity stocks.
Even with this growth, the P/E ratio comes in at just over 40. While this makes PANW a bit expensive, it remains far from the triple-digit P/E ratios seen in other tech stocks. Investors should also note that the 52-week high of $239.50 per share stands above Wedbush’s $225 per share price target. The PANW stock price has more than doubled from levels seen in early 2017. However, a correction beginning in September has taken the stock down by about 15%.
Still, I agree with Wedbush and believe the correction constitutes a hiccup in a long-term uptrend. With the massive growth and the company’s leadership in cloud security, I think the PANW stock price will reach and move beyond the $225 per share price target.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.