2 Cybersecurity Stocks to Buy for Long-Term Growth

Investors who are active in the stock market might be noticing increased commentary from company executives about the growing threats in cyberspace. As more of the corporate sector moves online, protecting critical data and digital infrastructure is rising to the top of the list of priorities for many companies. 

New types of attacks like ransomware, when hackers seek to hold networks hostage in pursuit of exorbitant financial payments in exchange for their release, are of particular concern. Cybersecurity stocks have been hot in 2021 for those reasons, but it's time investors take a much longer-term view of the sector, as cyber threats are likely here to stay. 

These two stocks focus on protecting online networks and could be powerful additions to your portfolio. 

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1. SentinelOne

When it comes to new-age cybersecurity, SentinelOne (S -0.14%) is quickly becoming an industry leader. Its public listing in June of this year was met with investor enthusiasm, with the stock rising about 50% since. 

SentinelOne is a disruptive force, leveraging artificial intelligence (AI) to protect customers across its core areas of expertise. Its platform takes an organization's separate functions like the cloud, the network, and the endpoint, and can aggregate security for all of them into one solution. 

It takes a proactive approach to protection through its Watchtower Threat Hunting component that constantly searches for potential risks, and when they're found, it uses AI to act immediately -- whereas other platforms rely on analyst decisions and intervention.

Data source: Company filings. YOY = year over year.

SentinelOne has over 5,400 customers, 345 of which spend $100,000 or more each year. In the second quarter of 2021, that top category of customers grew by 140% year over year, compared to 75% for the rest, highlighting SentinelOne's growing popularity among large organizations.

Sporting triple-digit-percentage revenue growth rates, SentinelOne is now outpacing its key competitor CrowdStrike, which grew revenue at 70% last quarter. But SentinelOne's potential could be unmatched in the future too, as artificial intelligence is helping companies build scale once never thought possible. 

Wall Street analysts have a consensus price target of $76 for the stock, which is over 20% higher than where it trades today. But with the company doubling year-over-year revenue each quarter, the real gains will be made over the long term. 

2. Tenable

Tenable (TENB -0.43%) is a vulnerability management specialist at the very top of the cybersecurity industry. It's the creator of programmable platform Nessus, the most widely used and built-upon vulnerability detection tool in the world, adopted by more than 30,000 organizations. 

The U.S. government maintains a database of common vulnerabilities and exposures, which some cybersecurity companies use to measure the effectiveness of their software. Of the 170,000 common vulnerabilities and exposures currently in the database, Tenable covers over 65,000 of them, making it No. 1 in the industry. And it's also No. 1 in the speed with which it resolves detected threats, usually squashing them in 24 hours or less. 

Data source: Company filings. 2021 estimate by Tenable. CAGR = Compound Annual Growth Rate.

Tenable operates a SaaS model, so almost all of its subscription-based revenue is recurring. In addition to over 30,000 enterprise customers who each spend a minimum of $5,000 per year, Tenable also has 933 six-figure customers who each spend over $100,000 per year.

Most importantly, the six-figure customer category is growing the fastest, with an increase of 11.4% this year since the end of 2020, compared to 2.4% growth in regular enterprise customers over the same period.

If its 33.6% compound annual growth rate (CAGR) continues, Tenable will double its revenue every 2.5 years. By comparison, the overall cybersecurity industry is expected to grow at a CAGR of 10.9%, so Tenable is growing at almost three times the pace, suggesting it's taking market share along the way. Therefore it's not surprising that Wall Street analysts have a consensus price target of $60 for the stock, which is 30% higher than where it is today.

Investors with a three- to five-year time horizon could unlock the most value from this stock as cybersecurity becomes an increasingly essential part of the digital economy -- and therefore most investment portfolios.