Cybersecurity firms have tremendous runways due to the rise of hackers and a constant need to keep data safe. Many cybersecurity corporations generate recurring revenue which creates more predictable cash flow and higher growth rates.
While you can choose from many cybersecurity stocks, some industry leaders are gaining market share at a faster rate than others. Many cybersecurity equities have outperformed the broader stock market and can deliver more gains for investors. These are some of the top cybersecurity stocks to consider.
Fortinet (FTNT)
Relatively speaking, Fortinet (NASDAQ:FTNT) is a value stock in the cybersecurity industry. The stock trades at a forward price-to-earnings (P/E) ratio of 40 and has a PEG ratio just below 2. Low valuations are hard to find in cybersecurity due to the rising demand for cybersecurity software.
The National Cybersecurity Centre recently released a warning that cyberattacks can reach unprecedented levels due to artificial intelligence. While artificial intelligence has enabled many corporations to increase productivity, the technology can also help hackers do more damage.
Businesses will have to turn to companies like Fortinet to stay protected. The only other option would be to cease online operations which isn’t feasible for most businesses. Fortinet benefits from an annual recurring revenue model and high-profit margins.
Fortinet’s Q3 2023 earnings highlight rising net income amid a temporary slowdown in revenue growth. Net income increased by 39.4% year-over-year while revenue only went up by 16.1% year-over-year. The company’s service revenue increased by 28% year-over-year and represents more than 65% of the company’s total revenue.
As Service revenue makes up a larger percentage of Fortinet’s total revenue, growth rates will march higher.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) is a leading cybersecurity firm that offers network security platforms, cloud-native application protection, an AI-driven security operations platform, and other cybersecurity solutions.
These solutions are important as cyber-attacks are on the rise. Ransomware attacks jumped by 37% year-over-year and the average ransomware payment is also getting more expensive. It’s very costly to get hit with a cyberattack. The cybersecurity market is gaining more traction due to this development.
You can choose from many cybersecurity stocks, but Palo Alto Networks has been a top performer. The stock has gained 121% over the past year and is up by 361% over the past five years. The company’s impressive Q1 FY24 results should strengthen this trend.
During that quarter, Palo Alto Networks achieved 20% year-over-year revenue growth. The company’s net profit margin surged to 10.34% due to an 871% year-over-year net income boost. The company’s Q1 FY24 net income came to $194.2 million.
CloudFlare (NET)
Cloudflare (NYSE:NET) has been a top tech stock with a 57% gain over the past year. Shares are up by 361% over the past five years. Wells Fargo recently hiked its price target for Cloudflare to $95 per share. That price target suggests a 14.5% upside.
The cloud services and content delivery network provider has over 182,000 paying customers since its 2010 launch. Cloudflare still has tremendous runway based on its 50% compounded annual growth rate from 2020 to 2022.
Cloudflare addresses several critical areas for businesses. The first key component is fast website load times. If a website takes too long to load, consumers will look for an alternative. Even an extra second of load time on average can result in a corporation losing millions of dollars due to people not waiting that long.
Cloudflare also helps businesses stay secure. The firm offers cybersecurity features that can keep websites safe from hackers. More customers are getting started with Cloudflare, and the corporation’s current customers have been paying more as well.
Cloudflare has experienced a 42% compounded annual growth rate in customer contracts exceeding $100,000/yr from 2021 to 2023. The company currently has 2,558 customers that fit this category.
On this date of publication, Marc Guberti held long positions in FTNT and NET. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
