Tenable Holdings (TENB +0.75%) and CyberArk Software (CYBR +0.00%) both occupy growing niche markets within the cybersecurity sector.
Tenable's paid platform, Nessus Professional, scans a company's entire infrastructure for vulnerabilities like misconfigured software, weak passwords, and network flaws. It also provides a free version for home networks. Nessus' proactive approach differentiates it from traditional cybersecurity services, which react to existing threats.
Many cybersecurity companies focus on stopping external threats, but CyberArk's privileged access management (PAM) software tackles internal threats like disgruntled employees and corporate spies. If a breach is detected, CyberArk's software locks down the network and tracks down the threat.
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Both of these companies seem like promising plays on the cybersecurity market, which Grand View Research estimates will expand at a compound annual growth rate (CAGR) of 10.9% between 2021 and 2028. But which of these niche players is a better overall investment?
Tenable is firing on all cylinders
Tenable's revenue rose 24% to $440 million in 2020, and it expects 22% growth to about $536 million this year. It serves more than 30,000 customers worldwide, including over half of the Fortune 500 and more than 30% of the Global 2000. It also serves several U.S. government agencies.
Earlier this year, Tenable unified its risk-based exposure tools into a single platform called Tenable.ep. It's also been expanding its subscription-based cloud platform, Tenable.io, to lock in more customers.
Tenable is unprofitable on a generally accepted accounting principles (GAAP) basis, but it posted a non-GAAP net profit in 2020. This year, it expects its non-GAAP earnings per share (EPS) to grow 58% to 63%.
In 2022, analysts expect Tenable's revenue and non-GAAP earnings to rise 19% and 13%, respectively. Its stock might look a bit pricey at 130 times forward earnings (partly due to its slim profits), but it still looks reasonably valued relative to its top-line growth at nine times next year's sales.
CyberArk's future looks murkier
CyberArk currently serves over 7,000 customers across 110 countries, including over half of the Fortune 500 and more than 35% of the Global 2000. Its revenue rose 7% to $464 million in 2020, and it expects approximately 7% growth to about $496 million this year.
That growth rate is stable, but it's being throttled by the replacement of its on-site appliances with its newer cloud-based services, which are stickier but generate lower upfront revenue.
But on the bottom line, CyberArk's aggressive investments in its cloud infrastructure and new marketing initiatives reduced its non-GAAP EPS by a whopping 26% in 2020. CyberArk was also profitable on a GAAP basis in 2019, but it turned unprofitable again on the same basis last year.
This year, CyberArk expects its non-GAAP EPS to plummet 88% to 95% as it continues to ramp up its investments. For 2022, analysts expect its revenue to rise 13%, but for its non-GAAP earnings to bleed red ink again. That's a pretty grim outlook for a stock that still trades at 12 times next year's sales.
The obvious winner: Tenable
Tenable deserves to be mentioned alongside high-growth cybersecurity companies like Palo Alto Networks and CrowdStrike for three simple reasons: It provides a proactive way for large companies to secure their networks, it's growing at a stable rate, and its stock is reasonably valued relative to its sales growth.
A few years ago, I would have also called CyberArk a promising cybersecurity stock. Unfortunately, its sluggish revenue growth, costly expansion of its cloud ecosystem, tumbling profits, and high valuation all make it a much weaker investment than Tenable and most other cybersecurity stocks right now.
