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3 'Strong Buy' Cybersecurity Stocks to Scoop Up Now

Barchart - Sat Apr 6, 12:00PM CDT

In the era of digitization and artificial intelligence (AI)-driven advancements, cybersecurity has become increasingly crucial for businesses worldwide. As cyber threats grow in number and complexity, the cybersecurity industry has consistently seen healthy growth over the past few years. Moreover, cybersecurity has evolved into a perennial concern, as evidenced by the unwillingness of businesses to compromise on their digital defenses in favor of cost-cutting measures.

This resilience explains why Gartner projects global cybersecurity spending to increase 14.3% to $215 billion this year. Longer term, the global cybersecurity market is expected to expand at a 13.8% CAGR to reach $424.97 billion by 2030. 

Given this backdrop, cybersecurity stocks like Zscaler Inc (ZS), CrowdStrike Holdings, Inc. (CRWD), and Tenable Holdings Inc (TENB), all of which have demonstrated exceptional market performance and earned consensus “Strong Buy” ratings on Wall Street, could be worth considering. Let’s take a closer look.

Cybersecurity Stock #1: Zscaler (ZS)

Zscaler, Inc. (ZS) is a cloud-based internet security platform headquartered in San Jose. It is valued at $27.3 billion by market cap, and is among the leading developers of zero-trust technology, which prevents hackers from accessing corporate networks. Zscaler is well-suited to defend against the growing threats emerging from generative AI.

ZS shares have soared by 80.9% over the past 52 weeks, substantially outperforming the S&P 500 Index's ($SPX) 26.7% rally.

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Zscaler’s price/book ratio of 29.72x is over 30% lower than its own 5-year average. However, its price/sales multiple of 17.27x is way higher than the Information Technology sector average of 3.05x.

In its fiscal Q2 earnings report released on Feb. 29, Zscaler’s revenue increased 35% year over year to $525 million, surpassing Wall Street projections by 3.6%. Its adjusted net income per share of $0.76 also beat analysts' expectations by 31%. Its free cash flow margin reached a record 19% for the quarter.

Zscaler’s customer base has grown to 7,700, and includes 40% of Fortune 500 companies. Further, around 2,820 customers spent at least $100,000 annually on the Zscaler platform, an increase of 21% year over year. The number of customers spending over $1 million or more also grew by 31.5% in Q2.

The company anticipates revenue between $2.118 billion and $2.122 billion in fiscal 2024, while non-GAAP net income per share is projected to range between $2.73 and $2.77. ZS has a consensus “Strong Buy” rating overall. Of the 36 analysts covering ZS stock, 27 recommend “Strong Buy,” one suggests “Moderate Buy,” and eight say “Hold.”

The average analyst price target for Zscaler is $255.06, indicating a potential upside of 39.1%. The Street-high target price of $310 implies a 69% upside potential.

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Cybersecurity Stock #2: CrowdStrike Holdings (CRWD)

Headquartered in Austin, Texas, CrowdStrike Holdings, Inc. (CRWD) is a leading global cybersecurity firm that revolutionizes security with its advanced cloud-native platform. The CrowdStrike Falcon platform, powered by AI and the CrowdStrike Security Cloud, ensures real-time attack detection, automated protection, and rapid deployment, reducing complexity and delivering immediate value. Its market cap currently stands at $74.7 billion.

Shares of CRWD have soared by 146.8% over the past 52 weeks, substantially outperforming the S&P 500 Index.

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The stock is currently trading at 285.13 times forward earnings, significantly higher than its closest peers. However, its price/cash flow ratio of 153.75 is a discount to its 5-year average of 196.08x.

The stock’s 31.4% YTD gains are due in part to CrowdStrike’s positive earnings, which beat Wall Street estimates. Q4 total revenue increased 33% year over year to $845.3 million, beating the consensus estimate of $840 million. Its annual recurring revenue increased to $281.9 million. The company’s non-GAAP net income more than doubled to $236.21 million, or $0.95 per share, compared to the Wall Street estimate of $0.82 per share.

For fiscal 2025, CrowdStrike expects strong demand to continue, and management projects revenue to range between $3.92 billion and $3.98 billion, reflecting year-over-year growth of roughly 28% to 30%. Its non-GAAP EPS is projected to range between $3.77 and $3.97.

Analysts tracking CrowdStrike expect EPS to grow 124% in fiscal 2025 and 59.8% in fiscal 2026.

CRWD has a consensus “Strong Buy” rating overall. Of the 40 analysts covering it, 35 recommend “Strong Buy,” three suggest “Moderate Buy,” and two say “Hold.”

The average analyst price target for CrowdStrike is $391.20, indicating a potential upside of 24%. The Street-high target price of $435 implies a 37.8% upside potential.

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Cybersecurity Stock #3: Tenable Holdings (TENB)

Columbia, Maryland-based Tenable Holdings, Inc. (TENB) specializes in exposure management solutions, helping companies gain visibility on their vulnerability and security issues. With Nessus, the cybersecurity industry's most extensively utilized vulnerability management tool, Tenable Holdings actively scans cloud networks, operating systems, and devices to identify vulnerabilities for timely patching before potential exploitation. It boasts a market cap of $5.6 billion.

Shares of TENB have returned 7.4% over the past 52 weeks and 4.9% on a YTD basis.

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Priced at 7.07 times sales, Tenable Holdings is trading roughly 15% lower than its own 5-year average and its closest peers.

Tenable reported better-than-expected Q4 results on Feb. 6. Its Q4 revenue grew 16% year over year to $213.3 million, surpassing Wall Street’s projections by 3.1%. Its non-GAAP net income more than doubled to $30.16 million, or $0.25 per share, compared to the Wall Street estimate of $0.14 per share.

The company projects fiscal 2024 revenue to be between $895 million and $905 million, while non-GAAP EPS is expected to range between $1.03 and $1.10, highlighting another year of potential growth. 

TENB has a consensus “Strong Buy” rating on Wall Street. Out of the 18 analysts covering TENB, 15 recommend “Strong Buy,” one suggests “Moderate Buy,” and two say “Hold.”

The average analyst price target for Tenable Holdings is $57.60, indicating a potential upside of 19.2%. Wedbush assigned the Street-high target price of $65 in February, implying a 34.5% upside potential over the next 12 months.

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On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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