As global tensions rise, 5 cybersecurity stocks worth a look
Cyber security company Palo Alto jumped today after raising its forecasts, citing growing worries about cyber attacks. It could foreshadow a big year for the sector.
Shares of cyber security company Palo Alto Networks (PANW) climbed as much as 8% Wednesday, a day after reporting better-than-expected earnings and raising guidance for the remainder of the year, as the demand for cybersecurity services remains strong.
The Santa Clara-based cybersecurity firm is among the top gainers today on the Nasdaq, which could be a sign of a solid year ahead for investors in cybersecurity stocks.
Shares of several top cybersecurity companies have been down so far this year, after coming off a strong 2020 and 2021. The coronavirus pandemic seemingly accelerated the world’s digital transformation, and investors eagerly scooped up cybersecurity stocks, driving prices higher.
The shift to work online likely won’t slow. That, and the growing number and intensity of cyberattacks, could mean cybersecurity stocks are worth a look, especially now that many have retreated from their previous highs.
The cyber threat
Separately, a cyberattack hit Ukrainian banks and government websites Wednesday, which underscores the growing profile of the cybersecurity sector. While the source of the attack hasn’t been identified, the outage comes as Russian troops move into forward operating positions around Ukraine’s borders, suggesting an invasion could take place any moment.
The current situation didn’t impact Palo Alto’s report for last quarter, of course. But it could add to rising worries about cyber security, and contribute to a big year for the cybersecurity stocks.
Palo Alto beat on earnings, revenue and hiked guidance for 2022
Palo Alto reported second-quarter fiscal year 2022 earnings and revenue Tuesday that topped Wall Street estimates.
The company earned $1.74 per share on $1.32 billion in revenue, up 12.26% and 29.41%, respectively, year over year. Analysts were expecting $1.65 per share on $1.28 billion in revenue.
Moreover, Palo Alto’s Remaining Performance Obligation (RPO) grew 36% year over year to $6.3 billion. RMO represents future revenues under contract but not yet recognized as revenue. Palo Alto now expects total revenue in the range of $5.43 billion to $5.48 billion for 2022, so its RPO works out to be more than a year’s worth of future revenue.
Indeed, Palo Alto raised its 2022 revenue guidance from its previous forecast of $5.35 billion to $5.40 billion, saying demand for cybersecurity services remains strong as the world sees cyberattacks growing in both number and intensity.
“We continue to see strong demand for cyber security,” said Palo Alto CEO Nikesh Arora during Tuesday’s earnings call. “We continue to see an evolving and complicated threat landscape … cyber security is at the front and center of all conversations around risks and threats at companies as well as nation-state levels. We believe cyber security will continue to become more and more relevant and important.”
The broader cybersecurity concern
According to the Identity Theft Resource Center’s (IRTC) 2021 Data Breach Report, there were 1,862 data breaches last year, of which 1,603 were cyberattack-related — so, more cyberattack-related data compromises in 2021 than all data compromises in 2020.
These numbers reflect a year of high-profile cyber attacks that targeted everything from the country’s largest oil pipeline to Microsoft to the meat-packing industry.
IRTC president and CEO Eva Velasquez said the number of breaches last year was “alarming.”
“Many of the cyberattacks committed were highly sophisticated and complex, requiring aggressive defenses to prevent them,” Velasquez said in a statement. “There is no reason to believe the level of data compromises will suddenly decline in 2022.”
On Wednesday, Ukrainian banks and government websites were hit with a wave of cyberattacks. The websites of the Ukrainian government, foreign ministry and state security services were down as a result of a mass distributed denial of service (DDoS) attack. A DDoS attack is when a hacker or group of hackers flood a target network or server with traffic so that others are unable to access it.
The attack also targeted several banks, with many Ukrainian residents receiving text messages saying the country’s ATMs were out of service. This comes a week after Ukraine was hit with a cyberattack that targeted the Oschadbank state savings bank and Privat, two of the country’s largest financial institutions.
Business insurance company Embroker states that cybercrime will cost companies worldwide an estimated $10.5 trillion annually by 2025. That cost stems from lost data, business disruption, revenue losses from system downtime and damage to a brand’s reputation.
As a result, spending on cybersecurity measures is projected to grow. For the five-year period from 2021 to 2025, cybersecurity spending is forecast to grow cumulatively to $1.75 trillion.
Investors, too, have increased their spending.
Investors poured more than $21 billion into cybersecurity startups in 2021, according to Crunchbase. That number exceeds the $8.9 billion cybersecurity companies raised in all of 2020. The last three months of 2021 alone saw about $1 billion less invested than all of the entire previous year.
While it remains to be seen whether this level of spending and investment continues or slows as we move through 2022, all the trends indicate an increasing need for cybersecurity services.
5 cybersecurity stocks to consider
With cyberattacks front and center in today’s market, these cybersecurity stocks are worth a look. Several have since pulled back from recent highs, which could signal a buying opportunity as the sector is positioned to see growth going forward.
- Palo Alto Networks (PANW). Shares of Palo Alto are up 212.14% over the last five years, hitting an all-time high of $572.67 in December 2021. Down 12% so far this year, analysts remain largely bullish on the stock and give it a $616.02 price target.
- Crowdstrike Holdings (CRWD). Shares of Crowdstrike have retreated 18.40% in 2022 but remain up 152% over the last five years. Analysts are overwhelmingly bullish on the stock and see it rising to $275.13 over the next 12 months.
- Zscaler (ZS). Though shares of Zscaler are down 20.68% year to date, the stock is up a staggering 625.45% over the last five years. It topped at $376.11 in November 2021, and the recent pullback could signal a good buying opportunity. Analysts see the stock climbing back to $374.06 in the upcoming year.
- Fortinet (FTNT). 2021 was a big year for Fortinet, which saw its stock climb 152% to a high of $366.74. It’s since pulled back and is down 14.59% so far this year. But Wall Street sees it recouping these recent losses as it makes its way back to $363.20.
- SentinelOne (S). SentinelOne debuted on the NYSE last June at $46 per share. The stock climbed to a high of $78.53 in November but has since lost over half its value. It’s now trading at 25.89% below its opening price. Of the 18 analysts covering the stock, 15 give it a Buy, versus just three Holds. Analysts see it hitting $64 over the next 12 months, a 88% premium over its current price.
For a complete look at the sector, check out our guide to cybersecurity stocks.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.
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