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2 Red-Hot Cybersecurity Stocks to Buy In May and Hold for Decades | #hacking | #cybersecurity | #infosec | #comptia | #pentest | #hacking | #aihp

It’s difficult to overstate the importance of cybersecurity in today’s world. One need only read the headlines for evidence of the devastating effects of these data breaches, hacks, and intrusions. And things will only get worse from here, as the number of cyber-attacks continues to rise.

A whopping 83% of companies will fall victim to a data breach, with many suffering more than one, according to the IBM Data Breach Report. It gets worse. The average cost to deal with a data breach in the U.S. is more than $9.4 million. 

This undeniable trend makes it more important than ever that businesses adopt the best cybersecurity solutions they can find. The old adage has never been more fitting: “You can pay now, or you can pay later.”

With that as a backdrop, let’s look at two red-hot cybersecurity stocks investors should buy now and hold for decades.

Image source: Getty Images.

1. Zscaler

Zero-trust may be all the buzz in cybersecurity these days, but the concept has been around for decades. One of the pioneers in the space is Zscaler (ZS -0.94%). By securing data and continually verifying the identity of users, the company has staked its claim in this large and growing market.

Last month, Gartner selected Zscaler for its highly respected 2023 Magic Quadrant title, which represents its leadership in security service edge solutions. This was the 12th consecutive year it won this honor. The report noted that Zscaler “continues to grow faster than the overall market,” in part due to its extensive network. 

That above-average growth was center stage this week, when Zscaler released preliminary results for its fiscal 2023 third quarter (ended April 30). The company expects to deliver revenue of $417 million at the midpoint of its guidance, up 45% year over year — and significantly above the 38% growth management previously forecast. 

That growth isn’t a fluke, either. Zscaler has generated revenue that has grown at a compound annual growth rate (CAGR) of 55% over the past five years, while those customers generating more than $100,000 in annual recurring revenue (ARR) have grown 42%, resulting in roughly $1 billion in ARR. While the company isn’t yet profitable, Zscaler has a track record of generating strong operating and free cash flow. This shows that its losses are the result of non-cash items like depreciation, and profits are simply a matter of time.

Zscaler has just begun to tap an enormous market, which management estimates at $72 billion. While investors should generally take those estimates with a grain of salt, it helps illustrate the magnitude of the opportunity ahead.

2. CrowdStrike

While CrowdStrike (CRWD -1.45%) is also a member of the zero-trust fraternity, the company takes a slightly different approach to cybersecurity. In addition to focusing on endpoint security, which includes desktops, laptops, and mobile devices, CrowdStrike also actively seeks out threats, using artificial intelligence (AI) to stop cybercrimes in their tracks.

The company’s Falcon platform has evolved from simple endpoint security and now offers “the industry’s most complete AI-powered threat protection.” The cloud-native system leverages its threat graph and advanced machine learning, sifting through the 2 trillion data points collected each day — getting smarter with each skirmish. In fact, the system is so advanced that in many cases it can predict the next attack before it begins. 

CrowdStrike was also named a Leader by Gartner’s 2022 Magic Quadrant for endpoint protection platforms, marking its third consecutive appearance. Furthermore, the company was also ranked highest in the report for its “completeness of vision.” 

CrowdStrike silenced detractors when it delivered the results of its fiscal 2023 fourth quarter (ended Jan. 31), which were far better than anticipated. Revenue of $637 million grew 48% year over year, driven by subscription revenue of $598 million, also up 48%. Perhaps as importantly, ARR — a forward-looking indicator — also grew 48% to $2.56 billion, showing that CrowdStrike’s growth streak is poised to continue. The company isn’t profitable on a GAAP basis, but generates strong operating and free cash flow, which are frequently precursors to profits. 

Because of its expansion into adjacent markets, CrowdStrike continues to increase its total addressable market. Management currently estimates that market at $76 billion, but expects it to grow to $158 billion by 2026. 

Data by YCharts

The fine print

The opportunity for investing gains in cybersecurity is significant, but it comes with an asterisk — and it simply isn’t for everyone, as there is already plenty of growth factored in. CrowdStrike and Zscaler both sell for 8 times next year’s sales, when most experts agree a reasonable price-to-sales ratio is between 1 and 2. However, investors have awarded them a premium valuation on the basis of their strong track record of growth.

That said, for those who can withstand the inevitable volatility and the mindset to hold for years, if not decades, these two stocks could be very profitable holdings, indeed.

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