The pandemic opened a whole new world for the cloud. As organizations and governments moved to the work-from-home culture, tones of data was accessed on the cloud through various endpoint devices.
The remote work convenience brought its security challenges. Cognyte’s report found that 1,097 organizations were hit by ransomware attacks in the first half of 2021 compared to 1,112 in the entire 2020. The United States continued to be the main target of these attacks.
Why Invest in Cybersecurity in 2022?
Growing cyber attacks increased the need for enhanced cybersecurity solutions. Gartner estimates that global spending on information security and risk management technology and services increased 12.4% in 2021 from 6.4% in 2020. This gave cybersecurity stocks their long-due growth.
Cybersecurity stocks are at a high-growth phase, and now could be the right time to invest in them. Fortune Business Insights expects the cybersecurity market to surge at a compounded annual growth rate (CAGR) of 12% in the 2021-2028 period. Three stocks could ride this growth:
CrowdStrike Holdings
CrowdStrike Holdings offers cloud-based cybersecurity solutions for businesses of all sizes. The company offers 19 modules on its Falcon platform ranging from endpoint security to cloud security to threat intelligence. It earns most of its revenue from subscriptions and grows it through the land and expand strategy. New customers land on its platform and it pitches them more modules to increases its average revenue per user (ARPU). This has helped it maintain customer retention and expansion rate above 120% since 2019.
CrowdStrike’s third-quarter revenue surged 63% year over year. It reported positive operating cash flow in the last two years. It expects to report its first positive operating margin of 7% in 2021 and aims to increase it to 20-22% in the long term. So far, it is on track to achieve its target, with a high net retention ratio (NRR).
Since its IPO in June 2019, CrowdStrike has become the largest pure-play security vendor by market capitalization ($36.9 billion). The stock’s inflection point came during the pandemic. It surged more than 615% between March 2020 and November 2021. The recent tech stock sell-off has pulled the stock down ~40% from its high. This is a good time to buy the stock while it is still in the high growth phase.
Zscaler
Zscaler is second to CrowdStrike in market cap, and it is growing. Zscaler is named the leader in Gartner’s Magic Quadrant December 2020 for secure web gateways. It has become the first Zero Trust Network Access solution that received Provisional Authorization to Operate at Impact Level 5 (PATO/IL5) from the U.S. Department of Defense (DoD). This is a testament to Zscaler’s product quality and can help it win more customers in the future.
Zscaler ‘s fiscal 2022 first-quarter revenue surged 62% YoY, and operating margin stood at 10%. It has maintained an NRR of over 125% in the last 12 months. The company still hasn’t reported a net profit, but it is in good shape with positive cash flows.
Zscaler stock’s inflection point was the same as CrowdStrike, but the former surged 780% during that period. Now, the stock is down 33% from its peak. With cybersecurity spending increasing, Zscaler has what it takes to make the most of this opportunity and surge significantly.
Fortinet
Fortinet is a veteran in the cybersecurity space, operating for over 21 years. It has a broader portfolio of cloud-based and physical firewalls, antivirus software, intrusion prevention systems and endpoint security components. The company maintained an average quarterly revenue growth rate of ~20% in 2019 and 2020. But the pandemic accelerated this rate to 28-30% in 2021.
Fortinet is among the largest cybersecurity companies by revenue and operates at a net profit margin of over 27%. It is still a growth stock with significant potential to tap the cybersecurity opportunity.
Fortinet has been trading on the stock exchange since 2009. But its inflection point came in March 2020 when the stock began its biggest rally to date. By the end of December 2021, this rally yielded a return of 335%. The stock currently has a market cap of $48.56 billion, which makes it bigger than Crowdstrike. The stock is down 19% from its high, making it a good entry point to jump into the rally.
Final Takeaway
The pandemic has spiralled cybersecurity stocks to new highs. But the recent tech-stock sell-off has discounted the above stocks, opening an entry point for value seekers. There is still growth potential in these stocks. A 200-600% rally is off the bucket, but double-digit growth is in the cards in 2022. The above three stocks will help you make the most of the cybersecurity growth trend.
Disclosure: The author holds no position in Crowdstrike Holdings Inc, Zscaler Inc, or Fortinet Inc. Freedom Stocks has a disclosure policy.
