Cybersecurity stocks have been going through a tough stretch. Many cybersecurity firms that have dominated the stock market since the pandemic (and even before that point) have been losing momentum.
Earnings misses, reduced guidance and frothy valuations fill the industry. This combination of factors makes it more difficult to find quality cybersecurity stock, especially pure plays. While many firms are experiencing slowdowns, the cybersecurity industry is here to stay. It’s projected to achieve a compounded annual growth rate of 12.3% until 2030.
Businesses need to keep themselves safe from hackers. Too much data and assets are at risk. These three cybersecurity stocks to buy now are companies that can protect businesses and generate long-term returns for shareholders.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) is one of the best cybersecurity stocks to buy now for investors who don’t mind a high valuation. Unlike most competitors, Crowdstrike is still growing at an impressive rate. The cybersecurity firm recently reported 33% year-over-year revenue growth in Q4 FY24. Guidance suggests that revenue growth will remain high.
The firm generates a good chunk of its revenue through a recurring business model. Annual recurring revenue grew by 34% year-over-year to reach $3.44 billion. The company also expanded its profit margins with $53.7 million in GAAP net income compared to a $47.5 million GAAP net loss in the same period last year.
Investors have noticed and are continuing to accumulate the stock. Shares are up by 25% year-to-date and trade at a 78-forward P/E ratio. If vast profit margin expansion continues, the stock can grow in its valuation. A good compounded annual growth rate for the cybersecurity industry combined with weaknesses from its competitors suggests Crowdstrike can capitalize on the opportunity.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) was once a heralded cybersecurity stock until a recent earnings report dragged down the stock price. The stock is down by 3% year-to-date but has gained 240% over the past five years.
Revenue grew by 19% year-over-year in Q2 FY24, a lower growth rate than previous quarters. The company had been generating 25% year-over-year revenue growth in previous quarters. Palo Alto Networks generated $135.5 million in income before income taxes during the quarter. Using this distinction is important since the company received a $1.6 billion benefit from income taxes. That’s why the company has an inflated net income of $1.7 billion in GAAP, which isn’t an accurate metric for gauging the stock.
Income before income taxes increased from $118.8 million in Q2 FY23 to $135.5 million in the most recent quarter. That’s a 14% year-over-year growth rate. The company anticipates revenue growth to range from 13% to 15% in Q3 FY24.
The big drop may present a long-term buying opportunity. The stock has an average rating of “Moderate Buy” and an implied 20% upside. Recent post-earnings price targets have been mostly positive and indicate the stock can gain more than 20%.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) isn’t a pure-play cybersecurity stock, but it has a lot going for it. Most of the company’s revenue comes from cloud computing. The platform helps businesses run more efficiently, but it’s also a digital resource companies have to protect.
The tech giant has a suite of cybersecurity software and recently announced Copilot for Security to gain more market share. This feature makes cybersecurity more accessible for individuals and small businesses. Copilot is the company’s artificial intelligence tool that has many users. It’s not just for cybersecurity; the company’s recent innovation will increase Copilot’s adoption.
The stock has outperformed the stock market for many years and is up 225% over the past five years. Analysts are bullish on the stock and believe it can increase by 12% from current levels. The stock is rated as a “Strong Buy” by 35 analysts. Recent price target hikes suggest the stock can gain more than 12%. The highest price target of $550 per share implies a 30% gain.
On this date of publication, Marc Guberti held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
