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With more individuals and enterprises than ever storing their sensitive information digitally, demand for online protection remains strong. According to this report, the cybersecurity market is projected to expand at a CAGR of 10.48%, ultimately reaching $273.6 billion by 2028.
However, investors right now might have trouble finding attractive values in cybersecurity. Many stocks in the space - including standouts like Cloudflare (NET), CrowdStrike (CRWD), and Checkpoint Software (CHKP) - are trading at or above Wall Street's consensus price forecasts, suggesting they could be overvalued at current levels.
With this in mind, here's a look at three cybersecurity stocks that analysts still expect to rally from here.
Okta
Founded in 2009, Okta (OKTA) is a cloud-based identity and access management company that provides a unified platform to manage user identities, access, and authentication across an organization's applications and resources. It is used by organizations of all sizes to improve their security and compliance and to reduce IT costs.
Moreover, its recent Auth0 acquisition is the preferred customer identity platform for many leading artificial intelligence (AI) companies such as OpenAI, Advanced Micro Devices (AMD), Sprinklr (CXM), and many other enterprise customers.
Currently commanding a market cap of $11.1 billion, Okta stock is up 0.9% on a YTD basis.
Most of the recent share price correction is tied to a recent hacking episode. However, for investors who like Okta's financial performance, the recent correction could present a potential entry point.
The latest results for Q2 2023 were impressive, as revenues rose by 23% from the previous year to $556 million, aided by a 24% yearly growth in subscription revenues to $542 million. Okta reported adjusted EPS of $0.31 in the quarter, reversing a loss of $0.10 per share in the previous year, and surpassing the consensus estimate of $0.22. The company's bottom line has exceeded expectations in each of the past five quarters.
Okta also reported an 18% yearly improvement to $1.77 billion in current remaining performance obligations (RPO), which is the order backlog expected to be realized in the next 12 months. Free cash flow was positive in the amount of $49 million, compared to negative free cash flow of $24 million in the prior year.
On average, analysts have deemed Okta stock to be a “Moderate Buy,” with a mean target price of $91.26. This indicates an upside potential of about 32% from current levels. Out of 37 analysts covering the stock, 20 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 14 have a “Hold” rating, and one has a “Moderate Sell” rating.
Palo Alto Networks
Founded in 2009 with an initial focus on developing next-generation firewalls, Palo Alto Networks (PANW) has expanded its product portfolio to include a wide range of security solutions, including cloud security, threat intelligence, and security management. The company has also made significant investments in AI and machine learning (ML) to develop more sophisticated security products, as with its AI-based security automation platform, XSIAM.
The cybersecurity giant's market cap currently stands at $78.8 billion. PANW has been on a tear this year, rallying 83.4% on a YTD basis.
The most recent leg of PANW's strong share price performance can be attributed to the company's well-received numbers for fiscal Q4. Revenues in the quarter were up 26% to $1.95 billion, while adjusted EPS jumped by 81% from the year-ago period to $1.44, comfortably outpacing the consensus estimate of $1.29. In fact, the company's EPS has topped expectations in each of the past five quarters.
RPO clocked impressive yearly growth of 30% to $10.6 billion, which also surpassed forecasts.
More recently, Palo Alto confirmed plans to scoop up Israeli startup Talon Cyber Security. The company revealed in its latest earnings call that it evaluates 250 private firms each year as potential M&A targets to continue on its growth trajectory.
Overall, analysts have a “Strong Buy” rating on the stock, with a mean target price of $279.08 - representing an upside potential of roughly 9% from current levels. Out of 37 analysts covering PANW, 31 have a “Strong Buy” rating, three have a “Moderate Buy” rating, and three have a “Hold” rating.
Zscaler
We round out our list with cloud-based security provider, Zscaler (ZS). Its Zero Trust Exchange (ZTX) platform is a cloud-based security architecture that delivers security services, including web application firewall (WAF), cloud access security broker (CASB), and zero trust network access (ZTNA), from a distributed network of data centers around the world. While conventional firewall only protects access to a network, with Zscaler's zero-trust architecture, users are able to secure access on a customizable basis at a per-app level.
Founded in 2007, the company currently commands a market cap of $25.8 billion. Zscaler stock is up 58.6% on a YTD basis, with recent upside driven by blowout results for fiscal Q4.
During the quarter, revenues rose by 43% from the previous year to $455 million, as billings jumped 38% to $719.3 million. Adjusted EPS arrived at $0.64, well above the consensus estimate of $0.49.
Analysts have a consensus “Strong Buy” rating for Zscaler stock, with a mean target price of $187.24. This denotes an upside potential of about 6% from current levels. Out of 34 analysts covering the stock, 25 have a “Strong Buy” rating, one has a “Moderate Buy” rating, and eight have a “Hold” rating.
