Cybersecurity is one of the fastest growing subsectors within the broader technology sector. But just like any sector there are cybersecurity stocks to buy and cybersecurity stocks to avoid.
Even before the global pandemic, enterprise companies already understood that protecting their businesses from cyberattacks was a need. Since 2020, many of these same companies – in addition to many small- and medium-sized businesses – are dealing with the cybersecurity challenges created by an increasingly remote workforce.
And for many of these cybersecurity companies, that revenue tends to be sticky. At a time when many of these companies are outperforming the broader tech sector, it’s notable when other companies report declining or flat revenue.
And that’s the primary reason why these three stocks make this list of cybersecurity stocks to avoid.
SentinelOne (S)
Cybersecurity is widely regarded as a recession-proof business. And SentinelOne (NYSE:S) touts its Singularity Platform as “pushing the boundaries of autonomous technology” through its AI-powered platform.
This combination should present investors with a bullish opportunity. However, that’s not the case for SentinelOne. The company cut its sales forecast after its first quarter earnings report for fiscal year 2024. In response to the announcement, the cybersecurity firm announced it was cutting its staff by 5%.
That hasn’t done much to appease investors. S stock is down 26% since making that announcement. But why investors should make this one of the cybersecurity stocks to avoid is that this drop is only a continuation of a trend that’s been in place since SentinelOne went public in 2021. Since then, the stock is down 64.8%. At a time when the cybersecurity market is red hot, there are better options for all but the most risk-tolerant investors.
Okta (OKTA)
Okta (NASDAQ:OKTA) provides the “only true independent and neutral identity solution.” Okta provides companies secure access to other companies’ networks in an increasingly remote world. That ability ensure that Okta will have a continuous revenue stream.
It also explains why Okta continues to generate sequential and year-over-year revenue gains. But that growth has been slowing. The same story can be made when it comes to earnings. It’s not unusual for a company in this space to be unprofitable.
There are other seemingly positive things to consider as well. For example, the company’s margins are increasing, and the company did update its guidance for the rest of the year.
However, that’s not doing much to lift the value of the stock. And at a time when the entire sector is growing, investors have to be careful about a stock that is up just 6% in 2023 and is down more than 30% over the last 12 months.
BlackBerry (BB)
BlackBerry (NYSE:BB) is the last stock on this list of cybersecurity stocks to avoid. One of the biggest problems facing the company is that revenue from its cybersecurity sector continues to drop on a YOY basis. But the larger problem is that the company’s recurring revenue is also declining.
BlackBerry’s push into cybersecurity is focused on the autonomous driving industry. However, this just illustrates the point that BlackBerry faces tremendous competition within this sector.
With that being said, the company has had some recent design wins, and there is still time for its pivot to work out. It’s a fair position to take that if you were going to buy BB, the time to do it is with the stock trading for under $5.
On the other hand, the stock is down 29% in the last 12 months, and that’s despite the fact that it’s up 46% in 2023.
On the date of publication, Chris Markoch 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.
