In the dynamic landscape of the security software industry, November presents secure investment opportunities in quality software stocks Qualys, Inc. (QLYS), Check Point Software Technologies Ltd. (CHKP), and Trend Micro Incorporated (TMICY).
In the United States, the growth of cybersecurity has witnessed a substantial surge in response to the escalating threat landscape and the increasing digitization of various sectors. With the nation’s critical infrastructure, businesses, and individuals facing ever-evolving cyber threats, there has been a heightened focus on fortifying digital defenses.
The US cybersecurity market is expected to reach $71.79 billion in revenue this year, with Security Services leading at $39.78 billion. The market is projected to grow at a CAGR of 9.7%, reaching $113.80 billion by 2028.
Moreover, AI and automation play a crucial role in cybersecurity, offering benefits such as rapid threat detection, dynamic vulnerability analysis, and consistent depth beyond human capabilities. Also, the companies adopting artificial intelligence (AI) and automation in cybersecurity have saved an average of $1.76 million in the current year, reflecting a 15% annual increase globally.
Furthermore, the demand for Security Information and Event Management (SIEM) and business continuity and disaster recovery solutions is expected to rise, driven by the need for visibility and risk assessment. With various use cases in compliance regulations, IoT security, and insider threat prevention, SIEM solutions are crucial in the modern threat landscape.
The cloud security software market is fragmented, driven by the increasing cyber-attack frequency. Enterprises are growing more vigilant and cautious about safeguarding their data stored in the cloud. The Cloud Security Software market is expected to grow from $38.87 billion this year to $87.27 billion by 2028, at a CAGR of 17.6%.
In light of these encouraging trends, let’s look at the fundamentals of the three Software – Security stock picks, beginning with number 3.
Stock #3: Qualys, Inc. (QLYS)
QLYS provides cloud-based Information Technology (IT), security, and compliance solutions. It serves enterprises, government entities, and small and medium-sized businesses in various industries, including education, financial services, government, healthcare, insurance, and utilities.
On October 31, 2023, QLYS made its VMDR TruRisk, FixIT, and ProtectIT capabilities available in AWS Marketplace, specifically tailored and priced for small-to-medium-sized businesses (SMBs) and small-to-medium enterprises (SMEs).
QLYS aims to assist SMBs and SMEs in optimizing their cybersecurity budgets by reducing cyber risk across their infrastructure and fostering business growth. This move allows users to consolidate their security solutions within AWS Marketplace for streamlined procurement and payment processes.
QLYS’ revenues increased 13.1% year-over-year to $142 million in the fiscal third quarter (ended September 30, 2023). Its non-GAAP gross profit came in at $117.95 million, showing an increment of 15.4% from the previous year’s value. The company’s non-GAAP net income increased 53.9% year-over-year to $56.68 million, and non-GAAP net income per share grew 60.6% from the prior-year quarter to $1.51.
For the fiscal year 2023, the company anticipates revenues between $554 million and $555 million, reflecting a 13% growth over 2022. The non-GAAP net income per diluted share is projected to be between $5.04 and $5.14, an increase from the earlier range of $4.50 to $4.65.
Analysts expect QLYS’ EPS to grow 22.9% from the prior-year quarter to $1.24 for the fiscal fourth quarter ending December 2023. The company’s revenue for the same quarter is expected to increase 10.7% year-over-year to $144.85 million. The company topped EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 48.2% over the past year and 49.7% year-to-date to close the last trading session at $167.98.
QLYS’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has an A grade for Quality. It is ranked #5 in the 23-stock Software – Security industry.
To see additional QLYS ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
Stock #2: Check Point Software Technologies Ltd. (CHKP)
Headquartered in Tel Aviv, Israel, CHKP offers a wide range of products and services for IT security globally. It provides multilevel security, cloud, network, endpoint protection, IOT solutions, and threat prevention technologies to enterprises, service providers, Small and Medium-Sized Businesses (SMBs), and consumers.
On October 16, CHKP introduced Check Point Horizon Playblocks, a security automation and collaboration platform designed to contain and prevent cyberattack spread automatically. This platform is part of Check Point’s Horizon security operations suite, which includes Managed Detection/Prevention and Response (MDR/MPR) SOC service, Extended Detection/Prevention and Response (XDR/XPR) SOC platform, and now Playblocks.
As cyber threats continue to evolve, Playblocks facilitates collaboration among security products, personnel, and processes to enhance the overall security posture. It addresses the challenges of increasing security alerts and events, as well as a shortage of skilled professionals, by streamlining actions across the entire security infrastructure in response to potential threats.
In September, CHKP announced the completion of its acquisition of Perimeter 81, a pioneering Security Service Edge (SSE) company, with a team of over 200 employees that serves more than 3,000 customers worldwide. As hybrid work and cloud migration continue to be the norm, this acquisition reinforces CHKP’s dedication to ensuring fast and secure access for remote users, sites, data centers, and the internet.
During the third quarter of 2023, CHKP repurchased approximately 2.48 million shares at a total cost of approximately $325 million.
During the fiscal third quarter that ended September 30, 2023, CHKP’s total revenues increased 3.2% year-over-year to $596.30 million. Its revenue from security subscriptions grew 15.2% from the year-ago quarter to $248.30 million.
Its non-GAAP operating income grew 2.4% from the year-over-year to $269 million, while its non-GAAP net income came in at $242.40, up 9.7% year-over-year. Also, the company’s non-GAAP EPS increased 16.9% from the prior year quarter to $2.07.
CHKP’s revenue is expected to increase 3.6% year-over-year to $2.41 billion in the fiscal year 2023. Its EPS estimate of $8.30 for the current year indicates a 12.7% improvement year-over-year. Additionally, it topped the EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 13.8% to close the last trading session at $138.31. It has returned 9.5% over the past three months.
CHKP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality. Within the same industry it is ranked #4 in the same industry.
Click here to view CHKP’s Growth, Value, Momentum, Stability, and Sentiment ratings.
Stock #1: Trend Micro Incorporated (TMICY)
Headquartered in Japan, TMICY develops and sells computer and Internet security software. It offers hybrid cloud security, intrusion prevention, cloud migration, network defense, security for small and medium-sized enterprises, endpoint security, and 5G security solutions.
On July 21, TMICY introduced Trend Vision One™ – Endpoint Security, the latest addition to its next-generation cybersecurity platform. This solution integrates prevention, detection, and response for user endpoints, servers, cloud workloads, and data centers. Aimed at supporting customers in their IT modernization efforts, it offers a comprehensive approach to cybersecurity.
With a four-year average dividend yield of 2.81%, the company pays an annual dividend of $1.14, which translates to a yield of 2.48% on the current market price.
TMICY’s net sales for the nine months ended September 30, 2023, increased 13.3% from the previous year’s period to ¥183.73 billion ($1.22 billion). Its operating income came in at ¥29.61 billion ($196 million). Its comprehensive income stood at ¥32.53 billion ($215.33 million), and its net income amounted to ¥12.81 billion ($84.79 million).
Street expects TMICY’s revenue to increase 166.5% year-over-year to $1.64 billion for the year 2023. Its EPS is expected to come in at $1.01 for the same year. It has surpassed the EPS estimates in three of the trailing four quarters.
Shares of TMICY have soared 20.7% over the past month to close the last trading session at $46.04.
TMICY’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Stability and a B for Value and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated TMICY for Growth, Sentiment and Momentum. Get all TMICY ratings here.
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CHKP shares were trading at $140.84 per share on Friday morning, up $2.53 (+1.83%). Year-to-date, CHKP has gained 11.64%, versus a 15.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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