According to Statista, the cybersecurity industry was worth just shy of $300 billion in 2022 and is projected to approach $540 billion by the decade's end. This underlines how serious corporations have become about protecting themselves and their data against hackers and malicious actors.
It's an opportunity no long-term investor should skip past. The companies providing next-generation security solutions could grow for years to come.
Palo Alto Networks (NASDAQ: PANW), SentinelOne (NYSE: S), and Fortinet (NASDAQ: FTNT) are three cybersecurity stocks that fit this description. Long-term investors should consider buying them this month.
Here is why:
1. Palo Alto Networks is a buy after a much-needed drop
Palo Alto Networks is a cybersecurity company that specializes in firewall security. A firewall is like a security guard at a wedding, checking invitations to ensure nobody, like that crazy ex-boyfriend, makes it inside. In technology, the firewall monitors network traffic that comes and goes. Its business spans three units: network security, cloud security, and security operations.
The company recently reported earnings for the second quarter of its fiscal year 2024. The stock plunged, primarily due to soft guidance that indicates year-over-year revenue growth will slow next quarter to 13% to 15%, down from 19% in Q2. Additionally, billings for the next quarter are expected to grow by just 2% to 4%.
Management is transitioning the business to a unified platform model, where everything it sells would fall under one offering. Management believes customers' desire to consolidate IT budgets is temporarily impacting revenue growth.
This could be seen as a speed bump and something worth watching. On the other hand, analysts are still very optimistic about the business, estimating earnings growth averaging over 26% annually for the next three to five years. That growth makes its forward P/E of 51 a reasonable price tag for long-term investors.
2. SentinelOne's improving financials could boost shares
SentinelOne is squarely in that conversation around next-generation security. It uses artificial intelligence (AI) to map out and proactively hunt for suspicious device files instead of waiting to react to a threat. The technology has garnered high marks from third-party consulting firms like Gartner and Mitre. SentinelOne began in endpoint security, protecting devices connected to networks, but has expanded into cloud and identity security over the past two years.
The business has grown significantly since going public roughly three years ago, including $573 million in revenue over the past four quarters. It's rapidly approaching the billion-dollar milestone, and its financials have improved.
While it still isn't profitable, SentinelOne's cash burn is trending in the right direction, at just $30 million last quarter. The company has $800 million in cash and zero debt, so funding is no concern.
The lack of profits has penalized the stock. Shares trade at a price-to-sales ratio (P/S) of just 10, half what its profitable direct competitor, CrowdStrike Holdings, trades at. Investors buying today could enjoy an upward lift on the valuation as SentinelOne keeps progressing toward turning a profit.
3. Fortinet isn't cheap, but is still worth checking out
Fortinet is a diversified security company. It sells various security solutions across its three units: Unified SASE, Security Operations, and Secure Networking. According to Gartner's Magic Quadrant system, it's a leader in network firewalls and SD-WAN security and shows up in six additional quadrants. The diversity means Fortinet enjoys a large footprint in the market; it currently works with 76 corporations in the Fortune 100 and 69% of the Global 2,000.
The company grew revenue by 20% in 2023, but growth has slowed, including just 10.3% year-over-year in Q4. Management is guiding for just under 10% growth for 2024, so it's not growing as quickly as some of its industry peers. However, the company is more mature and profitable than many.
Analysts expect earnings to grow by an average of 16% annually over the next three to five years. The business will do nearly $6 billion in revenue this year. Management believes its long-term addressable market could grow to $208 billion by 2027.
Meanwhile, the stock trades at 42 times its estimated 2024 earnings. That's not a bargain for high-teens earnings growth, but Fortinet is still one of the most prominent players in a growing and in-demand industry.
Consider adding one or all of these stocks to a diversified long-term portfolio. Cybersecurity is notoriously complex and competitive, so putting your money behind multiple players is smart.
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Justin Pope has positions in SentinelOne. The Motley Fool has positions in and recommends CrowdStrike, Fortinet, and Palo Alto Networks. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
