Thanks to strong revenue growth, many cybersecurity stocks have attracted growth investors. While some of these companies are seeing high revenue growth and double-digit profit margins, others are trying to minimize losses and turn a profit. Meanwhile, all should flourish because cybersecurity solutions are in heavy demand. After all, a single hack can cost a company millions of dollars in lost data, legal fees, and lost business. That being said, here are some of the top cybersecurity stocks to accumulate before they rally.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) shares sold off dramatically after the company lowered its guidance for the year. In fact, shares fell about 25%. How bad was the guidance? Definitely not bad enough to warrant a 25% drop. Fortinet merely lowered its 2023 revenue outlook from a range of $5.425 billion to $5.48 billion to a new range of $5.35 billion to $5.45 billion. That is a 1% difference at the midpoint.
In addition, billings went from a range of $6.75 billion to $6.81 billion to a new range of $6.49 billion to $6.59 billion. That represents a 3.5% drop at the midpoint. While investors would have preferred to see the company raise guidance, neither of those marks warrants a 25% drop in the stock. It’s no wonder some analysts view the drop as an opportunity.
We also have to remember that Fortinet is highly profitable and is a dominant player in the cybersecurity industry. The main complaint from investors was the stock’s valuation, but after the earnings hit, Fortinet appeared to be far more attractive.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) gained about 40% year-to-date and has more than doubled over the past five years. The cybersecurity firm has incredible top-line growth and reported a 42% year-over-year increase in Q1 of Fiscal 2024.
Crowdstrike is sitting on almost $3 billion in cash and turned in a profit. As margins improve, the company’s valuation can become more reasonable. Crowdstrike is making investments in artificial intelligence to improve its products and give users more security. Charlotte AI is the company’s new AI security analyst. Crowdstrike is working with AWS to expand its AI capabilities.
The company’s high revenue growth model is supported by a steady stream of annual recurring revenue. This stat jumped to $2.73 billion per year as of April 30, 2023. This figure represents a 42% year-over-year increase.
Iron Mountain (IRM)
Iron Mountain (NYSE:IRM) stores paper documents for its clients. The paper approach protects these vital documents from hackers since hackers can only get access to online information. The switching costs help Iron Mountain retain many of its clients. Better, Iron Mountain has clients with deep pockets, which include governments and 95% of the Fortune 1000 companies. It also has over 230,000 customers and offers cybersecurity services.
Iron Mountain has gained 22% year-to-date and is up by 76% over the past five years. Shares currently trade at a 47 P/E ratio and have a 4.25% dividend yield. Plus, it’s recession-resistant since it’s one of the last expenses its large enterprise clients would consider cutting.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) more than tripled over the past five years and is up by 54% year-to-date. The profitable firm recently reported 24% year-over-year revenue growth and a 26% year-over-year growth in billings. Palo Alto Networks uses several cybersecurity products and services to simplify its customers’ online security. The main focuses are on firewalls and cloud security.
Shares currently trade at a forward P/E ratio of 43 and a PEG ratio of 1.34. While both of those metrics can suggest the company is overvalued, Palo Alto Networks shares look attractive for long-term investors. The company’s ability to generate high revenue growth and expand profit margins makes it an attractive pick in the cybersecurity industry.
Qualys (QLYS)
Qualys (NASDAQ:QLYS) hasn’t enjoyed the same momentum as other cybersecurity stocks over the past few years. However, that trend appears to be changing. Shares are up by over 30% year-to-date and have elevated the company’s P/E ratio to 46.
The company’s recent earnings report demonstrates why more investors are piling into this stock. Revenue was up 14% year-over-year, but the big story with this stock is its net income growth. Net income jumped by 33% year-over-year, while other companies are reporting decelerating net income growth or losses. Operating cash flow also increased by 52% year-over-year.
Qualys’ Vulnerability Management, Detection, and Response (VMDR) was recently named the best vulnerability management solution in Europe. The accolades and management’s continued focus on growth can help the company gain more market share. Qualys has a $5 billion market cap which is lower than most cybersecurity stocks. Double-digit revenue growth combined with higher net income growth can help the company reward long-term investors.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) is a tech conglomerate that has been in business for decades. That type of longevity demonstrates the company’s ability to withstand various economic conditions. While the stock is only up about 21% over the last five years, investors like it for its 3% dividend yield. Cisco also offers several cybersecurity products and even offers cybersecurity certifications for people who want to learn the craft.
Security is one of the company’s three major divisions. The other two are cloud and software. Those three divisions helped Cisco report 14% year-over-year revenue growth in the Fiscal 3rd quarter. The company projects 14% to 16% year-over-year revenue growth for its fourth quarter. In addition, Cisco gives investors exposure to cloud, artificial intelligence, and cybersecurity. Accelerating revenue and net income growth can support higher dividend hikes and more share price appreciation.
Zscaler (ZS)
Zscaler (NASDAQ:ZS) is a high-growth cybersecurity stock that reported 46% year-over-year revenue growth. Although the company has not yet been profitable, leadership made progress on that front. In addition, Zscaler’s Zero Trust security platform has been attracting more customers across all sectors. Plus, Zscaler exceeded its guidance from the previous quarter which is always a good sign for investors.
A recent Zscaler report about global ransomware attacks suggests its business model will continue to grow in the upcoming years. According to this report, these types of cyberattacks increased by 40% year-over-year.
It’s important to remember how much money cybercriminals can make from their exploits. Cybersecurity solutions are necessary for many companies and can save them from legal fees, losing customers, and corrupted data. Zscaler and other cybersecurity stocks are poised to help businesses and investors.
On this date of publication, Marc Guberti held a long position in FTNT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
