Shares of popular cybersecurity solutions provider Fortinet, Inc. (FTNT) have gained significantly over the past year, driven by investor optimism about the growth prospects of the cybersecurity industry in the digital era. However, the company’s relatively low profitability versus its peers and stock price overvaluation make it susceptible to a pullback. FTNT’s 12.40x forward EV/Sales is 190.9% higher than the 4.26x industry average Also, the company’s 10.9% levered free cash flow margin is 63.9% below the 30.1% industry average. Wall Street analysts expect FTNT to witness an 11.3% decline in the near-term. Therefore, we think FTNT is best avoided now.
However, with the adoption of hybrid working models and large-scale digitization, the demand for cybersecurity solutions is increasing rapidly. Indeed, the global cybersecurity market size is expected to grow at a 12.5% CAGR to hit $418.30 billion by 2028.
Given this backdrop, we believe it is wise to invest in fundamentally sound cybersecurity stocks NortonLifeLock Inc. (NLOK), Check Point Software Technologies Ltd. (CHKP), and Radware Ltd. (RDWR). They are well-positioned to perform much better than FTNT in the near term.
NortonLifeLock Inc. (NLOK)
NLOK in Mountain View, Calif., is a software company that provides cyber security solutions to consumers worldwide. The company’s products and services enable users to protect their devices, online privacy, identity, and home networks. NLOK sells its products and related services through retailers, telecom service providers, hardware OEMs and e-commerce platforms.
On June 29, 2021, NLOK unveiled its Norton Utilities Ultimate, a new PC performance product designed to address the challenges of slow performance, response time and internet speed caused when gaming, browsing and streaming content on Windows PCs. Norton Utilities Ultimate helps boost PC performance while also recovering lost files and protecting sensitive information. NLOK expects to gain expanded market reach with the product in the near-term.
On June 2, NLOK launched Norton Crypto, a new feature to enable consumers to safely and easily mine cryptocurrency through its trusted Norton 360 platform. As the crypto economy continues to gain popularity, Norton Crypto delivers a secure, reliable way for consumers to mine for Ethereum without opening themselves and their devices up to the pitfalls of disabling security. NLOK expects to generate high demand from coin miners in the near term.
NLOK’s net revenues for its fiscal fourth quarter, ended April 2, 2021, increased 9.4% year-over-year to $672 million. The company’s gross profit has been reported at $573 million, up 10.8% from the prior-year period. Its non-GAAP operating income came in at $342 million, which represents a 34.1% year-over-year improvement. While its non-GAAP net income increased 40.1% year-over-year to $234 million, its non-GAAP EPS increased 53.8% year-over-year to $0.40. The company had $933 million in cash and cash equivalents as of April 2, 2021.
A $0.42 consensus EPS estimate or the current quarter, ending September 30, 2021, represents a 16.2% improvement year-over-year. NLOK surpassed consensus EPS estimates in each of the trailing four quarters. The $690.23 million consensus revenue estimate for the current quarter represents a 10.2% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 14.8% rate per annum over the next five years. The stock has gained 26.3% over the past three months and closed yesterday’s trading session at $27.73.
NLOK’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality, and a B grade for Value and Growth. Click here to see the additional ratings for NLOK (Stability, Sentiment, and Momentum).
NLOK is ranked #1 of 24 stocks in the Software – Security industry.
Check Point Software Technologies Ltd. (CHKP)
Based in Israel, CHKP develops, markets, and supports a range of software and hardware products and services for IT security worldwide. The company offers a portfolio of network security, data and endpoint security, and management solutions, and sells them to consumers, service providers, and small- and medium-sized businesses through distributors, system integrators, original equipment manufacturers, and managed security service providers.
In early July, CHKP became a sponsor of The Smart Factory @ Wichita, a new Industry 4.0 immersive experience center by Deloitte. Due to the immense need for comprehensive cyber security architecture to keep smart factories safe from ransomware attacks and hackers, both CHKP and Deloitte will work to advance the execution of smart factories and enable manufacturers to adopt Industry 4.0 technologies that boost quality, productivity and sustainability, in a digitally secure manner.
On June 15, CHKP expanded the capabilities of its unified Cloud Native Security Platform to deliver application-first workload protection with Check Point CloudGuard Workload Protection. This unified and automated approach reduces the complexity and risks of securing cloud applications and workloads, with end-to-end protection for all applications and microservices on a single, cloud native-platform. CHKP is expected to see good sales of this solution in the near-term.
For its fiscal first quarter, ended March 31, 2021, CHKP’s total revenues increased 4.3% year-over-year to $507.60 million. The company’s non-GAAP operating income was $246.30 million, up 6.5% from the prior-year period. Its non-GAAP net income has been reported at $211.20 million, which represents a 2.6% year-over-year improvement. CHKP’s non-GAAP EPS increased 8.5% year-over-year to $1.54. As of March 31, 2021, the company had $561.90 million in cash and cash equivalents.
CHKP surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is estimated to be $67.12 million for the current quarter, ending September 30, 2021, representing a 7.3% rise year-over-year. CHKP’s EPS is expected to grow at a 5% rate per annum over the next five years. The stock has gained 4.3% over the past year and ended yesterday’s trading session at $116.34.
CHKP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality, and a B grade for Value. We have also graded CHKP for Stability, Growth, Sentiment, and Momentum. Click here to access all CHKP ratings.
CHKP is ranked #5 in the Software – Security industry.
Radware Ltd. (RDWR)
RDWR is an Israel-based company that provides cyber security and application delivery solutions for virtual, cloud, and software defined data centers worldwide. The company sells its products primarily to independent distributors, including value-added resellers, original equipment manufacturers, and system integrators.
On June 30, 2021, RDWR partnered with Acantho, a telecommunications subsidiary of Italy-based Hera Group, to provide cloud web application security protection to enterprise customers in Italy. Using RDWR’s hybrid DDoS Attack Protection, Acantho has upgraded its own infrastructure and will offer RDWR’s Cloud WAF service to provide enhanced quality of service and application security and capitalize on the growing demand from enterprises for reduced risk of data breach and financial loss.
On June 10, RDWR partnered with Fujitsu, a Japanese information and communications technology equipment and services company, to enable increased traffic capacity for two Spanish healthcare organizations necessitated by the use of remote access during the COVID-19 pandemic. Fujitsu implementation of RDWR’s Alteon application delivery controller should enable it to capitalize on the growing need of online services and web-based content in the healthcare industry and to streamline processes, manage patient data and cut costs.
RDWR’s revenues for its fiscal fourth quarter, ended March 31, 2021, increased 11.3% year-over-year to $66.77 million. The company’s non-GAAP gross profit has been reported at $55.01 million, which represents a 10.3% year-over-year improvement. Its non-GAAP operating income came in at $7.48 million, up 54.9% from the prior-year period. RDWR’s non-GAAP net income has been reported at $8.02 million for the quarter, which represents a 20.7% rise from the prior-year period. Its non-GAAP EPS increased 21.4% year-over-year to $0.17. The company had $38.98 million in cash and cash equivalents, as of March 31, 2021.
RDWR surpassed the Street’s EPS estimates in three of the trailing four quarters. For the current quarter, ending September 30, 2021, analysts expect RDWR’s revenue to be $67.12 million, representing a 7.3% rise from the prior-year period. The stock’s EPS is expected to grow at 16% rate per annum over the next five years. RDWR has gained 16.1% over the past three months to close yesterday’s trading session at $31.30.
It’s no surprise that RDWR has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Growth and Quality. Click here to see the additional ratings for RDWR (Value, Stability, Sentiment, and Momentum).
RDWR is ranked #2 in the Software – Security industry.
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NLOK shares were unchanged in after-hours trading Wednesday. Year-to-date, NLOK has gained 35.38%, versus a 16.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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