Cybersecurity has become a critical component of business operations as companies look to deter cyber threats like data breaches. Meanwhile, for almost two decades, the month of October has been designated as a time to increase awareness of the subject. While the subject is top of mind for companies, cybersecurity stocks should be on every investor’s radar.
With the pandemic, a large number of enterprises have shifted toward a hybrid working arrangement. While more people are working from home, this structure can increase risks to businesses. From company assets to personal data, the number of potential cyber attack targets continues to increase significantly day by day.
Such threats are becoming increasingly sophisticated, costing businesses millions of dollars. Additionally, their brands have come under pressure as customers no longer trust them to safeguard their personal information.
The number of sophisticated cyber attacks is surging, meaning businesses, organizations and governments have to invest heavily in cybersecurity. This is creating a solid tailwind for many cybersecurity stocks. Recent metrics suggest the market for cybersecurity was worth $156.24 billion in 2020 and can reach $352.25 billion by 2026. That’s a compound annual growth rate (CAGR) of 14.5% over the next five years.
Demand for next-generation security software is primed to remain high over the next decade. Cloud-native cybersecurity companies with cutting-edge security solutions are growing rapidly in the industry.
With that information, here are some of the top cybersecurity stocks for growth investors to own in the coming weeks:
- Check Point Software Technologies (NASDAQ:CHKP)
- CrowdStrike (NASDAQ:CRWD)
- Cyberark Software (NASDAQ:CYBR)
- Fortinet (NASDAQ:FTNT)
- Palantir Technologies (NYSE:PLTR)
- Radware (NASDAQ:RDWR)
- SentinelOne (NYSE:S)
However, we should note that many of these stocks are currently trading at sky-high valuations. As we approach an important reporting season in the segment, these names might come under pressure in the short run. But potential declines in shares prices would improve the margin of safety for buy-and-hold investors.
Cybersecurity Stocks: Check Point Software Technologies (CHKP)
52-week range: $109.07 – $139.26
Israel-based Check Point Software Technologies offers a wide range of cybersecurity solutions. A base of more than 100,000 enterprise customers provides the company with cross-selling opportunities.
The company announced second-quarter results in late July. Revenue increased 4% year-over-year (YOY) to $526 million. Non-GAAP net income came in at $217 million compared to $225 million in the prior-year quarter. Non-GAAP earnings per diluted share increased by 2% YOY to $1.61. Cash and equivalents ended the quarter at $4 billion.
On the results, CEO Gil Shwed said, “Strong execution drove double-digit growth across CloudGuard and Harmony, and triple-digit growth in Infinity platform sales. Overall we grew our security subscription revenues by 12 percent.”
Check Point aims to provide customers with “the world’s most secure email security offering.” As part of this objective, the company has recently acquired Avanan, a rapidly-growing cloud email and software-as-a-service (SaaS) collaboration firm.
CHKP stock hovers slightly above $120, but is down 8% year-to-date (YTD). Shares are trading at nearly 17x forward earnings and almost 8x trailing sales. Given the increasing reliance on cloud-based products and distributed networking, current valuation offers investors an opportunity to buy CHKP stock at a discount.
52-week range: $118.10 – $289.24
Sunnyvale, California-based CrowdStrike provides artificial intelligence (AI)-powered cybersecurity solutions. Their offerings include endpoint security and proactive threat intelligence services.
CrowdStrike announced Q2 fiscal 2022 results in late August. Total revenue surged 70% YOY to $337.7 million. Adjusted net income came in at $25.9 million, or 11 cents per diluted share, up from $7.9 million, or 3 cents per diluted share, in the prior-year period.
Free cash flow soared 127% YOY to $73.6 million. Cash and equivalents ended the period at $1.79 billion.
CEO George Kurtz remarked, “CrowdStrike delivered an outstanding second quarter with rapid subscription revenue growth and record net new ARR generated in the quarter.”
Technology research firm Gartner named CrowdStrike an industry leader for 2021 thanks to its Falcon platform. The service links clients into a dynamic real-time network. If Falcon identifies a cyber threat, its AI-based capabilities take proactive measures. As more clients join the platform, the network effect makes CrowdStrike’s products more efficient.
CrowdStrike’s revenue is expected to increase considerably to $1.4 billion for the 2022 fiscal year. CRWD stock hovers around $280, up 34% YTD and 93% over the past year. Shares are trading at 333x forward earnings and 53.5x sales. Given the high valuation level, potential investors should wait for a pullback, possibly toward the $250 to $255 level, before buying.
Cybersecurity Stocks: Cyberark Software (CYBR)
52-week range: $95.12 – $187.87
Cyberark Software offers clients information technology (IT) security solutions to protect their data, infrastructure and assets. It currently has nearly 7,000 clients, including more than half of the Fortune 500.
Cyberark released Q2 results in mid-August. Revenue increased 10% YOY to $117 million. However, non-GAAP net income came in at only $250,000, down from $16.7 million in the prior-year period. Free cash flow stood at $13.9 million. Cash, marketable securities and short-term deposits ended the quarter at $1.2 billion.
Following the release of results, CEO Udi Mokady remarked, “Our momentum continued, and our underlying business growth meaningfully accelerated in the second quarter, driven by robust industry tailwinds and excellence in our execution.”
CyberArk metrics have come under pressure due to its $70 million takeover of the cloud-based identity-as-a-service provider Idaptive last May. Yet growth is expected to accelerate significantly in the quarters ahead.
CYBR shares have recently hit an all-time high of $187.87. They currently hover around $180, up 10% YTD and 58% over the past year. CYBR stock is trading at 15x trailing sales. Potential investors could consider buying when CYBR stock dips in price.
52-week range: $106.75 – $336.61
Fortinet offers integrated cybersecurity solutions, including firewalls and software services, through its platform. Management released Q2 results in late July.
Total revenue grew 30% YOY to $801 million. Product sales surged 41% while services were up by 24%. Adjusted net income increased 16% YOY to $159 million, or 95 cents per diluted share. Free cash flow of $395 million represented an 83% YOY increase. Cash and equivalents at the end of the period were $1.9 billion.
CEO Ken Xie noted, “We delivered our highest quarterly billings growth in over five years, led by the Americas and EMEA regions, while continuing to invest across our product portfolio.”
Fortinet’s firewall hardware is widely regarded as top of the line for securing data centers. Analysts believe product sales could deliver double-digit percentage growth over the coming years. On top of that, Fortinet has developed a versatile security suite that includes traditional office-based protection plus cloud software for remote workers.
FTNT remains one of the top cybersecurity stocks to buy for long-term investors. Management raised its full-year 2021 outlook, projecting revenue to be in the range of $3.21 billion to $3.25 billion. This implies full-year growth of around 25%.
The stock hovers near its 52-week high at levels around $330 per share, up more than 121% YTD. Shares are trading at 72x forward earnings and 18x sales.
Cybersecurity Stocks: Palantir Technologies (PLTR)
52-week range: $9.20 – $45
Software group Palantir Technologies specializes in data mining, big data analytics and cybersecurity services. It offers enterprise data platforms for governmental and corporate organizations to handle complex and sensitive data environments.
Palantir released Q2 results in mid-August. Revenue increased 49% YOY to $376 million. GAAP net loss increased to $139 million, but the company was profitable on an adjusted basis, reporting adjusted earnings per share of 4 cents. Adjusted free cash flow came in at $50 million. Cash and equivalents ended the period at $2.4 billion.
The company operates two separate platforms, Gotham and Foundry. Gotham is deployed for government agencies, while Foundry focuses on enterprise customers. Additionally, the “Foundry for Builders” service is available for start-ups and smaller companies.
Management forecasts at least 30% annual revenue growth through 2025. PLTR stock has gained more than 150% over the past year and skyrocketed to $45 per share in January. Yet, it’s currently down 45% from its peak, hovering in $24 territory. PLTR shares are trading at 35x sales.
52 week range: $21.66 – $39.78
Israel-headquartered Radware develops a broad portfolio of network products, including web application firewalls and intrusion prevention systems, mainly for large enterprises.
Radware issued Q2 results in late July. Total revenue soared 19% YOY to $70 million. Non-GAAP net income was $8.9 million, or 19 cents per diluted share, compared to $6 million, or 13 cents per diluted share, in the prior-year quarter. Cash, equivalents and marketable securities ended the quarter at $440 million.
On the metrics, CEO Roy Zisapel remarked, “We delivered record revenue and double-digit growth in revenue and earnings per share, as well as tripled our new customer bookings.”
Radware has recently started negotiations to sell the company to the private equity firm Siris Capital. As threats continue to surge by the day, these firms are increasingly interested in cybersecurity companies. Wall Street is waiting for the result of these discussions. Such a sale could lead to similar transactions in the future.
The company has recently forged a partnership with Azion, a global leader in edge computing in Brazil. The partnership enhances Radware’s global presence.
RDWR stock hovers slightly below $35, up 25% so far this year. Shares are trading at around 40x forward earnings and 6.1x sales.
Cybersecurity Stocks: SentinelOne (S)
52 week range: $39.94 – $73.47
Mountain View, California-based SentinelOne offers numerous cybersecurity solutions such as AI-powered prevention, detection and response across endpoints. It provides these services plus cloud workloads and Internet of Things (IoT) devices on a single platform. The company went public in June.
SentinelOne released Q2 fiscal 2022 results in early August. Total revenue increased 121% YOY to $45.8 million. The non-GAAP loss came in at $46 million, or 38 cents per diluted share, compared to a net loss of $21 million, or 62 cents per diluted share a year ago. Cash and short-term investments ended the quarter at $1.7 billion, including $1.4 billion of net proceeds from the initial public offering.
CEO Tomer Weingarten said, “Cybersecurity must be autonomous – that’s what we’ve built. It must perform at a faster speed, greater scale, and higher accuracy than what exists today.”
According to Gartner, SentinelOne’s platform is a leader in the endpoint security space, similar to its main rival CrowdStrike. It has over 4,700 customers that include hundreds of the Global 2000 firms. They include companies like Samsung Electronics (OTCMKTS:SSNLF), Fiverr (NYSE:FVRR) and Sysco (NYSE:SYY).
SentinelOne is expected to generate an average of $189 million in revenue in 2021, implying a whopping 103% YOY growth. S shares are at $60 territory and have surged 32% over the past three months. They are currently trading at 115x sales, an expensive valuation by most measures. Interested readers might want to wait for a pullback of 5% to 7% before hitting the “buy” button.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil 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.