Digital transformation is sweeping across the globe, especially in the days of the novel coronavirus, and in turn driving investors to find cybersecurity stocks to buy.
Advances in connectivity, as well as the widespread use of information technology, is fast transforming the world. Although most of us may welcome such increased digitization in our personal and professional lives, it also introduces a number of cybersecurity risks. In fact, many people, organizations and governments are especially concerned about the safety of health data.
As businesses and individuals need to keep digital data and their cyber environments safe, numerous upstarts and more established security firms have gained prominence. These cybersecurity companies have to constantly keep abreast of the developments in the field.
For example, the cloud environment, including data storage, remote access to computing processes via the internet as well as apps on personal devices, is altering workplace dynamics and how consumers interact with businesses.
Recent research led by Harjinder Singh Lallie by University of Warwick in England highlights the increased number of targeted, cyber-attacks and cybercrime campaigns since the start of the Covid-19 pandemic. “These scams target members of the public generally, as well as the millions of individuals working from home. … Cyber-attacks have also targeted critical infrastructure such as health care services.”
Competition among cybersecurity firms that are protecting health data is also heating up. They may work with hospitals and health systems to manage health care’s evolving cybersecurity risks, compliance requirements, and ensure patient safety.
Therefore today, we’ll discuss three cybersecurity stocks to buy.
- CyberArk Software (NASDAQ:CYBR)
- ETFMG Prime Cyber Security ETF (NYSEARCA:HACK)
- Palo Alto Networks (NYSE:PANW)
Cybersecurity Stocks to Buy: CyberArk Software (CYBR)
CyberArk specializes in “privileged access management,” i.e., systems that manage user accounts with elevated permissions to access critical resources in an enterprise. Put another way, it makes sure the right people — such as corporate employees — have access to the right systems and services.
CyberArk stops the use of compromised or stolen credentials from accessing important systems within an organization. Its customer base includes over half of the Fortune 500 list. These businesses typically choose CyberArk to protect their highest-value information assets, infrastructure and applications. In health care, several notable clients include AstraZeneca (NYSE:AZN), Boston Children’s Hospital, Novartis (NYSE:NVS) and Pfizer (NYSE:PFE)
Earlier in the year, the group purchased Idaptive for $70 million, with an aim to bolster its position in the identity management space.
On Aug. 4, the cybersecurity firm released second-quarter financial results. Total revenue was $106.5 million, compared to $100.2 million in the second quarter of 2019. The company divides revenue into two segments:
- License revenue ($47.9 million, compared to $52.2 million a year ago).
- Maintenance and professional services revenue ($58.6 million, compared to $48 million a year ago).
GAAP net loss was $4.3 million, or 11 cents per basic and diluted share. As of June 30, CyberArk had $1.1 billion in cash and cash equivalents. A year ago, the figure was $537.9 million. Management is focused on increasing the mix of subscription revenue, which provides revenue and cash flow visibility. The company expects revenues of $107 million to $115 million for the third quarter. Overall, the quarter was solid, but guidance was mixed.
CEO Udi Mokady said, “We were pleased to deliver results ahead of all guided metrics for the second quarter. The integration of our Idaptive acquisition is progressing well… Cybersecurity market fundamentals remain strong, identity security is at the top of customers’ priority lists, and our pipeline growth is robust. We are confident that we are positioned to accelerate growth as the overall business environment stabilizes.”
CyberArk went public on the Nasdaq composite in 2013 at an opening price of $25. Now, it is hovering at $112. Year-to-date, CYBR stock is down about 4%. However, that metric tells only half the story for 2020. Since the lows hit in March, the shares have gone up more than 30%.
Its forward price-earnings and price-sales ratio stand at 62x and 9.6x, respectively. Long-term investors may consider buying the sips, especially if the price declines to $100 or below.
ETFMG Prime Cyber Security ETF (HACK)
Expense ratio: 0.6%, or $60 per year on a $10,000 investment
The ETFMG Prime Cyber Security ETF is a portfolio of companies providing cybersecurity solutions that include hardware, software, consulting and services to defend against cybercrime.
HACK, which tracks the Prime Cyber Defense Index, includes 57 holdings. The top ten holdings constitute over 3o% of HACK’s assets under management, which stand around $1.5 billion. The top five companies are Sailpoint Technologies (NYSE:SAIL), Cloudflare (NYSE:NET), Splunk (NASDAQ:SPLK), Cisco (NASDAQ:CSCO) and Liveramp (NYSE:RAMP).
So far in the year, HACK is up over 19%. It hit an all-time high on Aug. 27 and its priced just over $50 per share. Long-term investors researching cybersecurity stocks to buy may want to keep HACK on their radar. A potential pull-back toward the $45 level or below would mean a better entry point into the fund.
Palo Alto Networks (PANW)
Santa Clara, California-based Palo Alto Networks is one of the largest cybersecurity firms worldwide, offering a range of products and services. Seasoned investors know of the company as the longtime maker of endpoint security.
Now management is working to make it an all-in-one platform package for all security-related requirements. The products and services include firewall appliances, panorama, virtual system upgrades, subscription services, support and maintenance, and professional services.
In late August, Palo Alto Networks reported fiscal fourth-quarter and FY 2020 financial results. Fiscal Q4 revenue grew 18% to $950.4 million. Similarly, 2020 revenue grew 18% YoY to $3.4 billion. Adjusted earnings was $1.48, compared to earnings of $1.47 per share a year ago.
Overall, it was a strong quarterly report that beat on the top and bottom lines. It showed strong billings and an upside FQ1 revenue and earnings outlook. CEO Nikesh Arora said, “We had a strong finish to our fiscal year, with fourth quarter billings accelerating to 32% year-over-year growth, driven by strong execution, work-from-home tailwinds, and continued success in next-gen security.”
The global shift to work-from-home is helping Palo Alto Networks move its business toward a cloud-based deployment and billings model. Year-to-date, PANW stock is up more than 10% to $255. Since the lows seen in early spring, the shares have more than doubled. Therefore, some profit-taking is likely in the coming weeks.
Long-term investors may want to do further diligence on the cybersecurity stock with a view to invest, especially if the price declines toward $245.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The author has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.