Since the onset of the pandemic, enterprises of all sizes have been focusing on digital transformation. Although the digital transformation was picking up earlier, the pandemic accelerated enterprises’ adoption of digital solutions to stay relevant in a highly competitive business environment.
The rapid adoption of digital technologies has enabled the implementation of newer and disruptive business models and processes, but it has also necessitated the need for enhanced cybersecurity solutions as cyber-attacks and security breaches became prevalent with digitization.
With the surge in investments toward digital transformation, cybersecurity companies are expected to play a significant role in helping enterprises manage their digital risks. Given its highly critical need, expenditure on digital security is becoming indispensable irrespective of the need to control costs amid an economic downturn. This makes the industry almost recession-proof.
Given the growth prospects of the industry with the speculated increase in cyber-attacks from Russia amid increasing sanctions on the nation and its recession-proof nature, I’m going to analyze three prominent cybersecurity stocks Qualys, Inc. (QLYS), Trend Micro Incorporated (TMICY), and NortonLifeLock Inc. (NLOK). These stocks look well-positioned to capitalize on the industry tailwinds.
Cybersecurity: The Beneficiary of Rapid Digitization and the Russia-Ukraine War
Over the past few years, enterprises have been investing heavily in their digital transformation by adopting leading technologies like cloud and edge computing, the Internet of Things (IoT), and Machine Learning. As enterprises continue to shore up their digital infrastructure, they become highly vulnerable to cyber-attacks and security breaches.
A cyber-attack is an attempt to gain unauthorized access to a computer, computing system, or computer network to disable, disrupt, destroy, damage, manipulate, steal, or alter data. Cyber-attacks can be carried out for financial gain, stealing crucial data, or initiating cyber warfare.
Russia’s invasion of Ukraine has put the focus on cybersecurity as cyberattacks have primarily characterized the conflict. Disruptions in essential services and businesses caused by cyber-attacks have plagued Ukraine, Belarus, and Russia. Russian hacktivists have threatened to target NATO countries’ governments and critical infrastructure that have pledged their support to Ukraine. Moreover, growing sanctions on Russia may invite retaliatory cyber-attacks on the United States and the EU. Due to such concerns, countries and large corporations are expected to make significant investments to hone their cybersecurity capabilities.
As companies adapt to newer, more advanced technologies, cyber-attacks will proliferate, thus necessitating the need to make consistent investments to remain resilient against the latest threats. JMP Securities’ equity research analyst covering IT infrastructure and cybersecurity, Erik Suppiger, said, “I think organizations are going to realize that they need to invest a relatively larger portion of their IT budgets on cybersecurity.” “In terms of the spending cycle, I think we’re still early,” he added. Therefore, the cybersecurity industry should be able to navigate the market and economic uncertainties better than others. So, one could reasonably term it a recession-proof industry.
Investors’ interest in cybersecurity stocks is evident from the First Trust NASDAQ Cybersecurity ETF’s (CIBR) 15% returns over the past year. According to a Fortune Business Insights report, the global cybersecurity market is expected to grow at a CAGR of 12% to reach $366.10 billion by 2028.
Prominent Industry Participants
Palo Alto Networks, Inc. (PANW) and CrowdStrike Holdings, Inc. (CRWD) are two major cybersecurity stocks. While PANW has returned 68.5% over the past year, CRWD has gained 30.1% over the past three months. PANW has a market capitalization of $60.84 billion, while CRWD has a market cap of $51.92 billion.
PANW’s CEO and Chairman Nikesh Arora said, “Given the recent rapid growth of the worldwide cybersecurity market, we see significant opportunities to accelerate our international business.”
3 Cybersecurity Stocks to Buy Now
Qualys, Inc. (QLYS)
QLYS provides a cloud-based platform delivering information technology, security, and compliance solutions, enabling organizations to identify security risks to their IT infrastructures and protect their IT systems and applications from cyberattacks. It serves enterprises, government entities, and small and medium-sized businesses across various industries, including education, financial services, technology, and utilities.
Analysts expect QLYS’ EPS for fiscal 2023 to increase 17.5% year-over-year to $3.42. Its revenue for the quarter ending June 30, 2022, is expected to increase 18.6% year-over-year to $117.33 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 42.5% to close the last trading session at $142.22.
In terms of trailing-12-month gross profit margin and net income margin, QLYS’ 78.25% and 17.26% are 55.5% and 216.6% higher than the industry averages of 50.29% and 5.45%, respectively. Also, its trailing-12-month EBIT margin and EBITDA margin of 27.96% and 36.70% are higher than the industry averages of 8.57% and 13.69%, respectively.
QLYS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B grade for Growth. It is ranked #3 out of 31 stocks in the Software – Security industry. Click here to see the other ratings of QLYS for Value, Momentum, Stability, and Sentiment.
Trend Micro Incorporated (TMICY)
Headquartered in Tokyo, Japan, TMICY is engaged in developing and selling computer security products and providing related services. The company’s main products include personal computer client products, local area network server products, internet server products, and integrated products. It develops businesses in hybrid cloud security, network defense, security for small and medium-sized enterprises, and endpoint security.
For fiscal 2023, TMICY’s EPS is expected to increase 7.1% year-over-year to $1.93. Its revenue for fiscal 2022 is expected to increase 145.8% year-over-year to $1.64 billion. Its EPS is expected to grow 12.1% per annum over the next five years. Over the past year, the stock has gained 10% to close the last trading session at $54.66.
In terms of trailing-12-month gross profit margin and net income margin, TMICY’s 77.93% and 20.16% are 54.9% and 269.7% higher than the industry averages of 50.29% and 5.45%, respectively. Also, its trailing-12-month EBIT margin and EBITDA margin of 22.93% and 33.90% are higher than the industry averages of 8.57% and 13.69%, respectively.
TMICY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Stability and Quality and a B grade for Value. It is ranked #2 in the same industry. To see the other ratings of TMICY for Growth, Momentum, and Sentiment, click here.
NortonLifeLock Inc. (NLOK)
NLOK helps consumers protect their devices, data, identity, online privacy, and home networks from cyberattacks. The company sells its cyber safety solutions through its websites or retail partners, telecom service providers, and hardware OEMs. Also, its product offerings include Norton 360 security, Norton Security, Norton Secure virtual private network (VPN), and Avira Security.
Analysts expect NLOK’s EPS and revenue for fiscal 2022 to increase 20.8% and 9.8% year-over-year to $1.74 and $2.80 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow 12.4% per annum over the next five years. Over the past year, the stock has gained 22.8% to close the last trading session at $26.55.
In terms of trailing-12-month gross profit margin and net income margin, NLOK’s 85.25% and 33.07% are 69.5% and 506.6% higher than the industry averages of 50.29% and 5.45%, respectively. Also, its trailing-12-month EBIT margin and EBITDA margin of 43.97% and 47.67% are higher than the industry averages of 8.57% and 13.69%, respectively.
NLOK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Value. Again, it is ranked #6 in the same industry. Click here to see the other ratings of NLOK for Growth, Momentum, Stability, and Sentiment.
QLYS shares were trading at $146.38 per share on Tuesday afternoon, up $4.16 (+2.93%). Year-to-date, QLYS has gained 6.68%, versus a -5.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More…