Cybersecurity is an area of technology that no company – or investor – can afford to ignore today. According to IT experts, cybercrime is likely to cost the global economy up to $20 trillion per year by 2030 – more than the current GDP of China. Looking for top cybersecurity stocks to buy and hold for the long term? Here are 4 names to check out.
CrowdStrike
One of the fastest-growing cybersecurity companies today is CrowdStrike (CRWD:NASDAQ). It offers an advanced cybersecurity platform designed to protect endpoints (such as laptops and smartphones), cloud workloads, identities, and data.
CrowdStrike is having a lot of success due to the fact that it offers a cloud-native platform (“Falcon”) that incorporates powerful technologies such as artificial intelligence (AI) and machine learning. It also benefits from a “network effect” whereby the more customers it signs, the stronger its offering becomes.
Now, this stock has a high valuation (the P/E ratio is about 125) because the company’s profits are still small. So, investors need to expect share price volatility.
I don’t see the high valuation as a deal breaker, however. Over the last 5 years, revenues have climbed 700%+ and looking ahead, analysts expect the company to continue growing at a fast pace.
Palo Alto Networks
Palo Alto Networks (PANW:NASDAQ) has been around for a while now. Founded in 2005, it has been providing network security solutions to businesses for around 2 decades.
The company has come a long way since its inception. Not only has it made a ton of acquisitions to enhance its offering but it has also pivoted to a “platformisation” model, offering comprehensive protection to its customers via several different platforms (instead of providing individual solutions).
This platformisation approach could be a game-changer for the company. In the most recent quarter, annual recurring revenue (ARR) from this side of the business (known as “Next-Generation Security”) rose 37% year over year to $4.8 billion.
Looking ahead, the company is targeting 2,500 to 3,500 platformisation customers by 2030 (vs around 1,150 now). It’s also aiming for $15 billion in Next-Generation Security ARR by 2030.
This stock currently has a P/E ratio of about 58. So like CrowdStrike, it’s expensive. It could still be worth considering, though. If the company can achieve its goals, earnings should rise significantly in the years ahead.
Fortinet
Next up, we have Fortinet (FTNT:NASDAQ). Another well-established cybersecurity company that has been around for decades, it has over 830,000 customers worldwide today.
Fortinet offers broad, integrated security solutions designed to protect an organisation’s entire network infrastructure. Its offering is based on the “Fortinet Security Fabric”, which aims to connect and unify various security components for better visibility and control.
This company has grown at an impressive rate over the last 5 years (revenue growth of 175%) but what really stands out here is the level of profitability. Over that period, return on capital employed (ROCE) has averaged 28%, which is far higher than the ROCE most cybersecurity companies have generated.
In terms of the valuation, the P/E ratio here is about 42. That’s a fair bit lower than the multiples on CrowdStrike and Palo Alto Networks, so there appears to be some value on a relative basis.
That valuation is still high, however. Ultimately, it doesn’t leave much room for an operational setback or a slowdown in growth.
Zscaler
Finally, we have Zscaler (ZS:NASDAQ). It’s the smallest company of the bunch, with a market cap of around $35 billion. It packs a punch for its size, though. Today, it serves over 7,500 customers, including 30% of the Forbes Global 2000.
Zscaler offers an advanced cybersecurity platform known as the “Zscaler Zero Trust Exchange”. This is designed to securely connect individual users, devices, and applications.
The company’s financials indicate that it’s having quite a bit of success with this offering. Over the last 5 years, its revenues have jumped about 600%.
Now, profits here are still small. As a result, the company has a lofty valuation (the P/E ratio is about 70). This adds some risk to the investment case in the near term. However, over time, the company should grow into its valuation.
Edward Sheldon owns shares in CrowdStrike
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
You can contact Ed at edward@goodmoneyguide.com
