3 best cybersecurity stocks to buy in July
In early July, the largest ransomware attack ever launched shut down up to 1,500 businesses worldwide. At the same time, Russian hackers have reportedly tried to infiltrate the Republican National Committee.
Ransomware attacks increased 150% in 2020, according to cybersecurity firm Group-IB, and recent cyber attacks indicate the situation could get worse this year. President Joe Biden already signed an executive order in May to bolster U.S. cybersecurity defenses, but it could require billions of dollars in new spending to block these devastating attacks.
Last month I underlined CrowdStrike Holdings, Palo Alto Networks, and Cisco Systems like three promising pieces that should benefit from this secular trend. Today, I’m adding three more cybersecurity actions to this list: Cloudflare (NYSE: NET), Fortinet (NASDAQ: FTNT), and Checkpoint software technologies (NASDAQ: CHKP). Let’s find out a little more about these three companies.
1. Cloudflare: The Cyber Security Growth Game
Cloudflare provides content delivery, domain name server (DNS), and cybersecurity services that sit between a website visitor and their host. These services help a website deliver digital content, protect it from Distributed Denial of Service (DDoS) attacks, and protect its visitors from malware.
Many internet users have likely encountered Cloudflare’s defenses and been asked to prove they are humans instead of bots. Its platform serves data from 200 cities in over 100 countries around the world and handles 25 million HTTP requests every second. Last October, Cloudflare co-founder and COO Michelle Zatlyn compared her secure network to a “water treatment filtration” system for the Internet.
Cloudflare’s revenue rose 50% to $ 431 million last year, and it halved its adjusted net loss from $ 70 million to $ 35 million. It ended the year with a net dollar retention rate of 119%, meaning its existing customers spent 19% more money year over year.
This year, analysts expect Cloudflare’s revenue to rise 43% to $ 615 million with another narrower loss. Its stock isn’t cheap at 55 times this year’s sales, but escalating cyber attacks indicate businesses and organizations will need Cloudflare’s services for the foreseeable future.
2. Fortinet: the safe bet in cybersecurity
Fortinet’s flagship product is a next-generation firewall called FortiGate, which is connected to on-premises security appliances through its Fortinet security framework. This digital “fabrication” provides end-to-end protection for on-premises, cloud-based and Internet of Things (IoT) devices on a network.
The company serves more than half a million customers worldwide, the majority of which are Fortune 500 companies, and uses its artificial intelligence and machine learning systems to analyze more than 100 billion events every day.
Fortinet’s revenue grew 20% to $ 2.59 billion last year. Its billings rose 19% to $ 3.09 billion while its deferred revenue – a key indicator of its future demand – rose 24% to $ 2.61 billion.
Its operating margin increased, its adjusted EPS increased 34% and it remained solidly profitable using generally accepted accounting principles (GAAP). This stable profitability sets it apart from many other cybersecurity companies, which are unprofitable.
Fortinet expects its revenue to grow 19% to 21% this year, its operating margin to remain stable, and its current profit to increase further 9% to 13%. The stock isn’t cheap either, at around 58 times futures earnings and 13 times this year’s sales, but its rock-solid growth rates might justify the premium.
3. Check Point software: the value game
Check Point is an Israeli cybersecurity company that provides firewalls to more than 100,000 businesses and millions of users around the world. Like many other older cybersecurity companies, Check Point has grown beyond its on-premises appliances with cloud-based services. It also offers more ways to protect manufacturing plants, utilities, and other critical environments from IoT-based attacks.
Its revenue grew 4% to $ 2.07 billion in 2020, and its cloud business generated double-digit percentage growth throughout the year. Its adjusted EPS has increased by 11% and it is firmly profitable by GAAP standards.
Analysts expect Check Point’s revenue to rise 4% this year as its profits remain nearly flat. This growth rate seems modest compared to other cybersecurity stocks, but it trades at just 16 times earnings forward, making it a rare value stock in a sparkling sector. Check Point has also repeatedly spent its free cash flow on redemptions, which has reduced its outstanding shares by 34% over the past 10 years.
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