Cybersecurity stocks often remain resilient during economic downturns since most companies won’t lower their digital defenses to save a few dollars. However, those headwinds can still make it tough to gain new customers.
That said, cybersecurity stocks are still great long-term plays for investors who can tune out the near-term noise. According to Fortune Business Insights, the global cybersecurity market could still expand at a compound annual growth rate (CAGR) of 14% between 2023 and 2030.
To capitalize on that growth, investors should consider owning these three cybersecurity stocks: Palo Alto Networks (PANW 4.18%), CyberArk Software (CYBR 5.82%), and Tenable (TENB 3.96%).
1. Palo Alto Networks
Palo Alto Networks serves more than 80,000 enterprise customers worldwide. It splits its services into three main platforms: Strata, which houses its next-gen firewall and on-site network security tools; Prisma, which handles its cloud-based security services; and Cortex, which provides AI-powered threat-detection tools.
Most of Palo Alto’s recent growth has been driven by Prisma and Cortex, which are collectively referred to as its next-gen security (NGS) services and accounted for 43% of its annual-recurring revenue at the end of fiscal 2023 (which ended July 31). Between fiscal 2018 and 2023, its revenue grew at a CAGR of 25% as its adjusted-net income rose at a CAGR of 30%. It also finally turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2023.
Palo Alto faces some near-term macro headwinds as companies rein in their spending, but analysts still expect its revenue and adjusted earnings per share (EPS) to grow 19% and 20%, respectively, in fiscal 2024. Its stock might not seem cheap at 43 times forward earnings, but its stable growth, rising profits, and balanced exposure to the on-site, cloud, and AI security markets all justify that higher valuation.
CyberArk provides privileged access management (PAM) services to more than 8,000 customers worldwide. Instead of focusing on external threats like Palo Alto, CyberArk’s PAM services protect internal networks from hackers and disgruntled employees. If a threat is detected, it locks down the network and quickly identifies the source.
Between 2017 and 2022, CyberArk’s revenue grew at a CAGR of 18%. It turned unprofitable by both GAAP and non-GAAP measures in 2022 as it expanded its cloud-based subscription services to curb its dependence on single licenses, but analysts expect it to return to non-GAAP profitability this year. They also expect its revenue to grow 24% even as more companies scrutinize their cybersecurity spending.
CyberArk’s dominance of the niche PAM market, which Allied Market Research estimates will grow at a CAGR of 23% from 2021 to 2030, makes it a reliable long-term play on an oft-overlooked niche of the cybersecurity market. It might seem pricey right now at 116 times forward earnings, but that valuation should cool off quickly as its profitability improves.
Last but not least, Tenable is a niche cybersecurity leader which focuses on proactively stamping out threats instead of responding to them. Its Nessus platform scans a company’s entire software infrastructure for soft spots like misconfigured software, weak passwords, and network flaws for more than 40,000 customers worldwide.
Tenable’s revenue grew at a CAGR of 29% between 2017 and 2022. It also turned profitable on a non-GAAP basis in 2020 and grew its non-GAAP net income by 87% in 2021 and 14% in 2022. Analysts expect its revenue and adjusted EPS to grow 15% and 71%, respectively, this year.
That’s a bit lower than its previous outlook for generating more than 20% annual-revenue growth over the next few years, but it still expects the expansion of Tenable One — which bundles together a lot of its services — to lock in more customers. It should also continue to expand at a faster clip than the broader vulnerability-management market, which Research and Markets predicts will grow at a CAGR of 7.5% from 2022 to 2030.
Based on its steady growth and promising long-term prospects, Tenable could still be a great long-term buy at 53 times forward earnings.