Consumers and businesses around the world are spending heavily for data protection and digital infrastructure. Cybersecurity companies embrace this trend. Worldwide spending on cybersecurity is forecast to reach a record $151 billion in 2023, according to data from Nasdaq Investment Intelligence. Furthermore, revenue growth in the cybersecurity industry is expected to grow 11% per year moving forward.
The priority being placed on cybersecurity is driving the stocks of some companies in the sector to new heights. Palo Alto Networks (NASDAQ:PANW) stock, for example, is up 80% on the year.
However, not all cybersecurity companies are sharing in the bounty. Some stocks are in steep decline, either due to poor earnings, execution, competition, or all of the above. As such, it is important for investors to separate the wheat from the chaff when it comes to cybersecurity firms. These three stocks are the worst ways to play cybersecurity right now.
Okta (OKTA)
Best known for its user authentication software, cybersecurity firm Okta (NASDAQ:OKTA) has badly trailed its peers and the broader market. Over the last 12 months, OKTA stock has declined 30%.
In the past six months, the company’s share price has registered virtually no gain (up a slight 0.27%), even though the tech-laden Nasdaq index has risen more than 30%. In June alone, Okta’s stock fell more than 20% after the company issued weak forward guidance that spooked analysts and investors.
While Okta reported decent earnings, the company’s forward statements appear to suggest that growth is slowing at the company. Okta is expecting Q2 revenue growth of 25% year over year, which sounds good until you compare it to annualized revenue growth of 65% in Q1. The company recently launched Okta Device Access that provides one unified login across all electronic devices. But it will be a while until that new product makes an impact on Okta’s bottom line. Then again, maybe it won’t.
SentinelOne (S)
Another cybersecurity laggard has been SentinelOne (NYSE:S). In the last year, S stock has plunged 45%. Even worse has been its performance since going public in June 2021. S stock debuted at $35, and its share prices more than doubled to a peak of $76.30 in November 2021.
Since then, the share price has declined 80% to its current level under $15. As with Okta, SentinelOne’s terrible results are due to slowing growth at the company.
After growing its revenue by more than 100% in each of the last two fiscal years, SentinelOne forecast that its revenue growth will slow to 40% to 42% in its current fiscal year. The company blamed the slowdown on economic headwinds and a potential recession, which have led many companies to reduce spending on cybersecurity. This reality has weighed heavily on S stock, dragging it lower in the process. It also doesn’t help that SentinelOne remains unprofitable and awash in red ink.
BlackBerry (BB)
Unbeknownst to most investors, once dominant smartphone maker BlackBerry (NYSE:BB) has pivoted to focus primarily on cybersecurity software. However, the transition to cybersecurity has been neither smooth nor successful.
Consequently, BB stock has fallen 53% over the last five years, including a 15% decline in the past 12 months. BlackBerry has also become a popular meme stock whose shares are regularly pushed up to unsustainable levels for short periods of time by retail investors.
This May, BlackBerry announced it’s strategic review in an effort to achieve efficiencies and boost the share price. It has also sold 32,000 patents related to its former mobile devices, messaging, and wireless networking business for $900 million. This move was an attempt to raise much needed cash with its cybersecurity business hitting the skids. At the end of June, BlackBerry reported a Q1 net loss of $11 million. The company said revenue in its cybersecurity unit totaled $93 million, down 18% from $113 million a year earlier.
On the date of publication, Joel Baglole 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.
