Cybersecurity firms generate annual recurring revenue and have robust long-term prospects. Any online data point can get hacked into without the right protection. Cyber attacks can lead to costly damages, reduce customer loyalty, and result in expensive legal fees.Â
Small businesses and corporations do not want to become victims of cyberattacks. That’s why many of these organizations invest in cybersecurity software and solutions to minimize their risk. Investors can choose from several cybersecurity stocks to ride the trend and increase profits.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) offers a buy-the-dip opportunity. Shares are down by roughly 25% from their all-time high but have gained 314% over the past five years. The company has top-tier cybersecurity that offers products around secure networking, security operations and universal secure access service edge (SASE).
The firm has over 705,000 customers in various verticals. Fortinet recently increased a generative AI-powered security assistant to improve productivity among security teams.Â
The firm faces some headwinds that resulted in only a 16% year-over-year revenue growth rate in Q3 2023. The company still delivered on net income with a 39.4% year-over-year increase.
Ken Xie, founder, chairman and CEO of Fortinet, mentioned a slowdown in the secure networking market has led to slower growth. The company is prioritizing SASE and Security Operations markets which are growing faster than the Secure Networking market.
Secure Networking makes up 70% of Fortinet’s business. As the other segments grow, Secure Networking will take up a smaller slice of the pie. Another sign of optimism is that the company’s service revenue grew by 27.6% year-over-year and service revenue made up roughly 65% of the firm’s total revenue. That’s the Fortinet many investors know.
Valuation is a key factor that makes Fortinet stock attractive. Fortinet has a 37 forward P/E ratio which is much lower than most cybersecurity stocks.
Palo Alto Networks (PANW)
The next two cybersecurity stocks are for growth investors who can take on higher valuations in exchange for higher net income and revenue growth. Palo Alto Networks (NASDAQ:PANW) has been a leading cybersecurity firm for years. The company has also blown away most of the stock market.
PANW shares have gained 139% over the past year and are up by 380% over the past five years. The firm has a $106 billion market cap and a 63 forward P/E ratio. Revenue grew by 20% in the first quarter of fiscal 2024 while the net profit margin soared beyond 10%.
Remaining performance obligations grew by 26% year-over-year which can support high revenue growth in the future. The cybersecurity firm expects to generate 18%-20% YoY revenue growth in the second quarter of fiscal 2024. Total billings are expected to grow by 15%-18% YoY. Palo Alto Networks stands to gain value as cyberattacks become more frequent.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) trades at a 77 forward P/E ratio and has delivered an 189% gain over the past year. Shares are up by 350% over the past five years. Not every investor may be happy about the valuation, but the cybersecurity leader has impressive revenue and earnings growth.
Crowdstrike reported record profitability and 35% year-over-year revenue growth in the third quarter of fiscal 2024. Annual recurring revenue now exceeds $3 billion. The company added an additional $223 million in annual recurring revenue in the quarter.
Those growth rates can support the stock’s lofty valuation and lead to more gains for shareholders. Crowdstrike has improved its top and bottom lines, and the company is releasing new features to keep current customers onboard. The firm recently released Charlotte AI which is a generative AI assistant. The AI tool can save businesses time and help them address breaches faster.
Crowdstrike is a promising cybersecurity stock due to its strong financial growth. If Crowdstrike continues to grow at these rates, the valuation looks reasonable if you have a multi-year horizon.
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.
