The internet makes it easier for people to communicate with each other and access relevant information. While the digital evolution has yielded many benefits, there are also many openings. Hackers exploit these openings to steal consumers’ information and sensitive documents from organizations. In the age of hackers stealing people’s information, the best cybersecurity stocks out there are killing it!
A single cyberattack can cost a business millions of dollars and damage its reputation. Cyberattacks are lucrative and hackers continue to get smarter. Companies are defending themselves with cybersecurity software and services that have recurring annual fees.
Investors can profit from the cybersecurity trend while pouring their money into firms that keep other businesses safe. These are some of the top cybersecurity stocks to add to your must-buy list.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) is a profitable cybersecurity stock that posts net profit margins above 20%. While many cybersecurity corporations burn through cash to scale, Fortinet has been GAAP profitable and free cash flow positive every year since its IPO in 2009.
Investors seem to have forgotten Fortinet’s lengthy history of outperforming the market after two bad earnings reports. While net income continues to grow at an impressive pace, revenue growth has slowed down.
In the third quarter, Fortinet reported 16.1% year-over-year revenue growth. It’s a sharp departure from 30% or higher revenue growth. Investors could have seen this company based on billing growth. Billing only grew by 18.1% year-over-year in the second quarter. The growth rate decelerated even more to 5.7% year-over-year growth.
Low billing growth suggests revenue growth will continue to decelerate. However, Fortinet will likely return to high revenue growth once headwinds are reduced.
Service revenue continues to grow at 27.6% year-over-year. Product revenue is the main culprit for the recent stumbles, and it represents a lower percentage of total revenue every quarter. Fortinet has the net income and profit margins to withstand a slowdown. Once things speed up, Fortinet should reward patient investors.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) has exceeded market returns with a 122% year-to-date return. Shares have surged by 432% over the past five years.
Palo Alto Networks has steadily posted top-line growth and continued that trend in the first quarter of fiscal 2024. In that quarter, Palo Alto Networks achieved 20% year-over-year revenue growth. Remaining performance obligations jumped by 26% year-over-year, and the company expects billings to increase by 15%-18% year-over-year.
While revenue and billings growth came in with good numbers, net income growth was far more impressive. The cybersecurity firm went from $20.0 million in GAAP net income in Q1 FY2023 to $194.2 million in Q1 FY2024. It represents an 871% year-over-year increase and brought Palo Alto Networks’ profit margin into the double digits.
Shares are still expensive and trade at a 57-forward P/E ratio. However, if Palo Alto Networks continues to report exceptional net income growth, it can make the valuation much easier to justify. You can easily see why this on earned its spot on our list of the best cybersecurity stocks.
Cloudflare (NET)
Cloudflare (NYSE:NET) powers up many websites and keeps them safe from cyberattacks. More than 7.5 million websites use Cloudflare, including 3,280 of the 10,000 most popular websites globally. That also includes 30% of the Fortune 1,000 Companies. Cloudflare’s large customer base translates into steady annual recurring revenue that can grow due to price hikes and market expansion.
The stock has certainly rewarded long-term investors. Shares have almost doubled year-to-date and are up by 372% over the past five years. Cloudflare regularly posts high revenue growth including 32% year-over-year revenue growth in the third quarter.
Although Cloudflare is still burning through money, net losses are narrowing. The company only reported a $23.5 million net loss in the quarter compared to a $42.5 million net loss in the same time last year. The company generated positive net cash flow and has $1.57 billion in cash and cash equivalents. The company’s total current assets comfortably exceed total current liabilities. If you want to invest in the best cybersecurity stocks, start here.
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.
