Cybersecurity is everything these days. Everyone from credit companies to hotels are desperate to shore up their cybersecurity, and it’s even playing a pivotal role in the U.S.-China trade war. CyberArk Software (NASDAQ:CYBR) is my pick these days, and I’d like to compare it to a couple of its peers to demonstrate exactly why. Despite clients’ desperate need for these products, some cybersecurity stocks that look like winners superficially…simply aren’t, at this juncture.
My Portfolio Grader tool will cut through any corporate hype real quick and point you to what matters: 1) fundamentals, and 2) buying pressure (or lack thereof) from big money on Wall Street. As we’ll see, that makes it pretty clear which well-known cybersecurity stocks measure up – and which don’t.
With cybersecurity stocks, as with everything else, a big part of success is getting the timing right. For example, in 2009 and 2010, F5 Networks (NASDAQ:FFIV) was one of the hottest stocks around – up nearly 560%! Then it had some ups and downs on its way to an all-time high in late 2018.
Now for 2019 to date, it’s down 14%, versus a 20% gain for the rest of the S&P 500.
With a high-quality stock, that would be a great opportunity to go bargain-hunting. But, as you see here, FFIV stock is not that:
At the end of the day, F5’s sales growth is looking mediocre, as are its cash flow and Analyst Earnings Revisions. It’s not growing operating margins or earnings, either, and has a poor history of Earnings Surprises, so investors should be seriously concerned from a profitability perspective.
And FFIV stock’s Quantitative Grade is downright ugly. It earns an F there, suggesting that institutional cash is fleeing. We’re staying far away from this stock in our Growth Investor model portfolio.
FireEye (NASDAQ:FEYE) is another major player in cybersecurity, although its heyday was in 2013. Unfortunately, this stock is not measuring up right now, either:
FEYE stock’s Quantitative Grade is a D, reflecting at least slightly better buying pressure on Wall Street, compared to FFIV stock. But its growth prospects are uninspiring, in terms of sales, operating margins and earnings. In fact, its prospects for earnings season in general are downright bleak, with an F for both Analyst Earnings Revisions and Earnings Surprises. There are far better tech plays available.
That brings me to CyberArk Software (NASDAQ:CYBR), whose picture is the complete opposite in that regard – making it a Buy-rated stock in Portfolio Grader.
It’s also a stock I follow for Breakthrough Stocks, where we’re up 18% with CYBR in just seven months. I was sure to brief subscribers on CyberArk’s blowout earnings report in early August…in which second-quarter earnings soared 70.4% year-over-year!
Specifically, CYBR’s second-quarter earnings came in at $23 million, or $0.59 per share, up from $13.5 million, or $0.36 per share, in the same quarter a year ago. The analyst community was expecting earnings of $0.47 per share on $97.29 million in revenue, so CyberArk posted a 3% sales surprise and a 25.5% earnings surprise, too.
Here’s the full picture on CYBR:
All in all, CyberArk has strong fundamentals, growing both sales and earnings like a champ. Its Quantitative Grade is even better: It earns an “A” on this proprietary measure of institutional buying pressure, contributing to a total grade of “A” as well.
So, unlike its peers at F5 Networks and FireEye, CYBR stock is a Strong Buy.
CYBR is a newer stock; while this Israeli credential security company has been around since 1999, its IPO was in late 2014.
It also has room to grow. Its market cap (of just under $4 billion) is less than half of FFIV’s. Plus, it’s an excellent acquisition target.
There’s another major growth catalyst on the horizon — in fact, it’s already ramping up now.
The “Mother of All Technologies”
Right now, scientists are developing the next generation of computing technology. And once it’s widely available, it’ll trigger what Forbes called the “Next Industrial Revolution.”
Computers have already made life easier and more efficient for decades. However, there’s still a lot of room for human error. Plus, with the “Internet of Things,” there is just too much data for the human brain to analyze. That’s why the second wave of computers will interpret this data themselves, and communicate and learn from each other. We need machine learning — artificial intelligence (AI) will take everything to a whole other level.
In fact, AI is already doing exactly that. If you’ve ever used an app that makes personalized recommendations — Netflix (NASDAQ:NFLX) and Zillow (NASDAQ:Z) come to mind — or even an email spam filter, you’re benefiting from AI.
And with all of this being powered by the internet…cybersecurity becomes even more vital!
These ancillary (yet crucial) plays are a perfect way for investors to take part as the “mother of all technologies” gets deployed around the world. And there’s a few different ways to play this AI megatrend; go here for the full results of my research.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.