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Cybersecurity Sector

2 Cybersecurity Stocks That Are Good Buys Right Now

2 Cybersecurity Stocks That Are Good Buys Right Now

After a few notable data breaches, and the Russian election interference scandal, cybersecurity stocks are worth a look. And these 2 are at the top of the pack.

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If you needed another reason to consider cybersecurity stocks, this week’s indictment of 12 Russian intelligence officers on allegations of their involvement in the 2016 presidential election hacking scandal is a pretty good one.

This comes after the last few years of headline after headline about data breaches and hacking activities that ran the gamut from the Equifax breach that exposed the personal data of 143 million Americans in September of last year, to ongoing stories about hacking activities from North Korea, and China, and of course Russia’s digital interference during the elections of 2016.

As these stories have continued to unfold, the cybersecurity sector has certainly heated up. And in the lead up to this year’s midterms, the sector is definitely one to watch.

“Focus on the topic of cyberattacks should rise in the lead up to the November midterm elections,” said Goldman Sachs analyst Arjun Menon. “Cybersecurity stocks have outperformed sharply year to date and further upside is possible this year alongside a potential ramp up in security spending.”

“A potential rise in security spending ahead of the midterm elections should boost cybersecurity stocks through the remainder of 2018,” Menon continued.

While the sector has been rising for a while, Goldman says there’s still meat on the bone for many of the stocks in the space.

“Cybersecurity firms have surged year to date (22% vs. 5% for the S&P 500) but the industry remains below 2015 highs (relative to the S&P 500),” Menon noted. “Valuation expansion has been a key driver of cybersecurity outperformance this year and room remains for further expansion given reasonable relative valuations compared with the past five years.”

These are the two stocks in the sector I find most attractive now.

CyberArk Software (NASDAQ: CYBR)

90% of security professionals say that an enterprise’s IT infrastructure isn’t fully protected unless its privileged accounts are secured, and CyberArk Software (NASDAQ: CYBR) is the global leader in the privileged access security market with solutions that help enterprises create a second layer of security around their networks.

The company reported a very strong first quarter as the global demand for cybersecurity solutions that safeguard sensitive data has surged.

In Q1, CyberArk’s license revenues rose 17% to $38.5 million, its maintenance and professional services revenue leapt 28% to $33.3 million, and its total revenue climbed 22% to $71.8 million – besting forecasts for sales of between $68.25 million and $69.75 million.

“We were pleased to start 2018 with a very strong quarter, exceeding our guidance across revenue, operating income, and EPS,” CyberArk CEO Udi Mokady said in a press release. “We continue to see robust demand for our solution across geographies and vertical markets.”

It’s no wonder then that the company has seen three positive earnings estimate revisions in the past 60 days ahead of its Q2 report early next month, with one coming just within the last week. Right now, current analyst estimates report EPS growth of 16.3% and revenue growth of 21.3% this fiscal year.

With such huge numbers, it isn’t surprising CyberArk is trading at a premium to other industry competitors, but the company has issued strong guidance, has made some smart strategic acquisitions, and is gaining customer accounts at a solid rate, making it an attractive option in the space.

Proofpoint (NASDAQ: PFPT)

Proofpoint (NASDAQ: PFPT) delivers a cloud-based security platform that blocks threats in emails, mobile apps, and social media accounts, and its services scan more than 600 million emails, 7 million mobile apps, and hundreds of thousands of social media accounts every day.

As usage of email, apps, and social media continue to rise, the company’s market will continue to expand. Considering that, it’s not surprising that Proofpoint’s revenue rose 37% to $515.3 million last quarter. Analysts are expecting another 30% in growth in 2018. What’s more, deferred revenue—a key indicator of future growth—surged 47% in 2017 to $381.9 million.

The company’s bottom line non-GAAP net income rose 149% to $42.1 million last year, and analysts anticipate that figure will raise another 39% this year.

Proofpoint’s CEO, Gary Steel, attributed his company’s strength in 2017 to its “robust add-on and renewal activity,” with “increased penetration of the Fortune 1,000.”

Over the last five years, the stock has risen more than 600%. While it isn’t cheap at 90 times forward earnings, the stock looks poised to become a market leader in the burgeoning cybersecurity space in the coming years.

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