The cybersecurity industry is booming.
The economy has undergone a major shift since the pandemic began. Economic shutdowns accelerated long-term trends toward the digitization of businesses and the transition from in-office work to hybrid and remote work. RBC Capital Markets analyst Matthew Hedberg says the new hybrid workspace and an increasing reliance on cloud-based infrastructure has made cybersecurity even more critical and complex. RBC recently took a deep dive into cybersecurity services, for which the consulting firm Gartner estimates that spending will continue to grow by roughly 10.4% annually and reach $225 billion by 2025. Here are 10 cybersecurity stocks to buy today, according to RBC.
CrowdStrike Holdings Inc. (ticker: CRWD)
CrowdStrike is a cloud security software vendor. Hedberg says the company is expanding its offerings beyond laptop and desktop protection, applying a cloud-centric model outside of antivirus services to virtual machines and cloud-based workload. This expansion sets CrowdStrike apart from other legacy antivirus vendors. Management recently guided for $3 billion in annual recurring revenue by fiscal 2025, an impressive 30% compound annual growth rate since the $1 billion in annual recurring revenue, or ARR, that Crowdstrike reported in fiscal 2021. Management recently guided for $3 billion in annual recurring revenue, or ARR, by fiscal 2025, an impressive 30% compound annual growth rate since the $1 billion in annual recurring revenue that CrowdStrike reported in fiscal 2021.
Cloudflare Inc. (NET)
Cloudflare provides cloud-based services to secure websites. Hedberg says Cloudflare’s overall mission to help build a safer and faster internet creates significant cybersecurity revenue opportunities. Examples of those opportunities include secure access service edge, or SASE, via Cloudflare One; website and application distributed denial-of-service and bot attack protection; and web application firewalls. Hedberg says Cloudflare’s total addressable market could grow to about $100 billion by 2024, and opportunities in < ahref=”https://money.usnews.com/investing/funds/slideshows/best-5g-etfs-to-buy”>5G wireless networks and the “internet of things” could expand it even further. RBC has an “outperform” rating and a $220 price target for NET stock, which closed at $150.26 on Dec. 9.
Okta Inc. (OKTA)
Okta provides an identity management platform for enterprise customers, including customer identity and access management services. In addition, its recent acquisition of Auth0 Inc. allows developers to deliver identity and access management tools without having to build them from scratch. Okta management has announced that the company will expand into the privileged access managementor, or PAM, and identity governance and administration, or IGA, markets, as well. Hedberg says new PAM offerings will focus on application distribution and databases, while IGA offerings will focus on “additional fine-grain entitlement and reporting.” RBC has an “outperform” rating and a $300 price target for OKTA stock, which closed at $228.16 on Dec. 9.
Palo Alto Networks Inc. (PANW)
Palo Alto Networks is a global cybersecurity vendor. Hedberg says there are several reasons for investors to like Palo Alto, including momentum in the company’s next-generation security stack and consistent growth in its firewall-as-a-platform business. In addition, Hedberg expects consistent revenue growth and margin expansion in coming years. Management recently said it is shifting focus to boosting productivity after three years of investing in product development, which Hedberg says should further support margins. The company guided for 23% compound annual revenue growth through fiscal 2024. RBC has an “outperform” rating and a $660 price target for PANW stock, which closed at $527.53 on Dec. 9.
Zscaler Inc. (ZS)
Zscaler is a cloud security software vendor and a leader in zero-trust security. Hedberg says Zscaler is still in the early stages of a massive emerging market. The company has a long-term goal of 200 million users and 100 million workloads. Hedberg says security and digital transformation, distributed work, and zero-trust security are all long-term growth tail winds. Management has targeted fiscal 2024 operating margins of between 20% and 22%. The company also suggested that it expects compound annual revenue growth of at least 30%. RBC has an “outperform” rating and a $380 price target for ZS stock, which closed at $303.04 on Dec. 9.
Mimecast Ltd. (MIME)
Mimecast provides cloud security and risk management services for corporate email and data. Hedberg says he is bullish on Mimecast’s potential to accelerate revenue growth in a post-pandemic world given improvements in employment data and the company’s focus on people-centric security. Mimecast’s financials are stabilizing, key metrics are trending in the right direction, and Hedberg says the company is a key cybersecurity vendor given its focus on email. RBC has an “outperform” rating and an $88 price target for MIME stock, which closed at $79.19 on Dec. 9.
Ping Identity Holding Corp. (PING)
Ping Identity is an identity and access management, or IAM, market leader. Hedberg says Ping will benefit from many of the same post-pandemic tail winds in IAM that makes him bullish on Okta. In addition, Hedberg says a shift to cloud software identity offerings, including workforce and customer identity, should help accelerate Ping’s revenue growth. Ping reported 19.4% annual recurring growth in the third quarter. As the cybersecurity environment stabilizes in coming quarters, Hedberg sees a path for Ping back to at least 20% ARR growth. RBC has an “outperform” rating and a $40 price target for PING stock, which closed at $22.84 on Dec. 9.
Rapid7 Inc. (RPD)
Rapid7 provides cybersecurity analytics and automation services. Hedberg says Rapid7 has an opportunity to monetize the development, security and operations market. Over time, Hedberg says, Rapid7 can also expand into additional security and compliance categories, including vulnerability management, application security and cloud security. Rapid7 reported 31% organic ARR growth in the third quarter, and Hedberg says the company’s impressive growth numbers make it one of his top small- and mid-cap stock picks. Hedberg projects that annual recurring revenue will reach $1.2 billion by 2025. RBC has an “outperform” rating and a $157 price target for RPD stock, which closed at $116.57 on Dec. 9.
SailPoint Technologies Holdings Inc. (SAIL)
SailPoint Technologies provides enterprise identity governance services. Hedberg says SailPoint’s cloud-centric approach to expanding its IGA business will help the company tap into a post-pandemic market that increasingly prioritizes corporate governance. In the third quarter, ARR growth accelerated to 44%, and Hedberg says the mix of new customers and expanded existing business is encouraging. Subscriptions accounted for 55% of annual recurring revenue and 87% of new bookings. Management delivered positive commentary on SailPoint’s product pipeline, and Hedberg says conversion of base customers to the cloud computing model represents a multiyear opportunity. RBC has an “outperform” rating and a $65 price target for SAIL stock, which closed at $47.73 on Dec. 9.
Varonis Systems Inc. (VRNS)
Varonis Systems provides data security and analytics. Hedberg says Varonis has an opportunity to convert its data governance and insider threat management business to a subscription model. He’s bullish on the company’s potential to govern both on-premise data stores and cloud data stores. Varonis reported 36% ARR growth in the third quarter. Hedberg says the company is in a good position heading into 2022 and beyond given the near-term environment of strong demand coupled with longer-term growth drivers of economic digitization and cloud migration. RBC has an “outperform” rating and an $82 price target for VRNS stock, which closed at $50.75 on Dec. 9.
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Update 12/10/21: This slideshow has been updated with new information.