Cyberattacks continue to grow each year. It’s a profitable industry for hackers, but companies can protect themselves with cybersecurity software and services. Protecting online data can help companies maintain good reputations and avoid significant financial damages.
Investors can get more out of their money by looking for industries with steady streams of capital and demand. Cybersecurity is a core service many businesses rely on. Corporations can’t walk away from it because the consequences are far more costly than a monthly subscription.
That dynamic gives cybersecurity firms a massive advantage but some are better than others. These three cybersecurity stocks look promising for investors who want exposure to the booming industry.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) is facing some headwinds due to a lower growth rate in total billings, translating into lower revenue growth. The company still posted 16% year-over-year (YoY) revenue growth, but that’s a far cry from 30%+ year-over-year revenue growth.
Even though revenue slowed down, service revenue is still growing fast. The segment grew by 27.6% YoY and represents more than half of Fortinet’s business. Only product revenue slowed down, and it should pick up again after short-term headwinds are gone.
The pullback presents an attractive long-term buying opportunity for investors who can wait several years. The company is highly profitable and regularly posts net profit margins above 20%.
An end-of-the-year rally has brought shares to a 22% year-to-date (YTD) gain. The stock has appreciated by 322% over the past five years. Fortinet stock currently trades at a 35-forward price-to-earnings ratio. The firm gives investors growth and profitability.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) looks richly valued on the surface but rapid net income growth is making the valuation look more reasonable. The cybersecurity leader offers various software and services. Businesses can use its Zero Trust Platform to protect online information.
Shares trade at a 57 forward P/E ratio, which looks more reasonable than the company’s 168 P/E ratio. PANW has a story similar to Nvidia (NASDAQ:NVDA) when it comes to net income growth and valuation. The firm posted $194.2 million in GAAP net income in the first quarter of fiscal 2024. That’s an 871% YoY increase.
Palo Alto Networks won’t maintain that pace in net income. However, the company only needs high net income growth for a few more quarters to justify the valuation. Revenue grew by 20% YoY, and the company walked away from the first fiscal quarter with a 10% profit margin.
Palo Alto Networks has room to expand its profit margin and become a reasonably valued stock. Investors have enjoyed the ride so far. Shares have more than doubled YTD and are up by almost 400% over the past five years.
Zscaler (ZS)
A common theme among many cybersecurity stocks is market outperformance. Zscaler (NASDAQ:ZS) is no exception to the rule. Shares have doubled YoY and are up by 457% over the past five years. Despite the significant gains, the stock is roughly 40% below its all-time high.
Zscaler isn’t making a profit like the other two companies. However, it is delivering higher revenue growth, which came in at 40% YoY in the first quarter of fiscal 2024. Billings grew by 34%, implying there’s more to the growth story.
The GAAP net loss came in at $33.5 million, a notable improvement from a $68.2 million GAAP net loss at the same time last year. The company is targeting $5 billion in annual recurring revenue and beyond for its cloud security business. ZS recently appointed two leaders in the industry to assist with this effort.
The firm is aiming to generate $505 million to $507 million in revenue during the second quarter of fiscal 2024. The $506 million midpoint represents 30.5% YoY revenue growth.
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.
