Wall Street Thinks This Cybersecurity Growth Stock Could Soar

The digital realm has made our lives far more convenient, but it has also left us more vulnerable to bad actors than ever. In the real world, our exposure to crime might be limited to our immediate geographical area, but in cyberspace, our attackers could be anywhere in the world.

This threat is even more real for companies, with ransomware and data breaches becoming increasingly common. Not only can these attacks be costly from a financial perspective, but companies that fail to protect their customers' data also face the risk of severe reputational damage.

Image source: Getty Images.

That's why global spending on cybersecurity is expected to top $1.75 trillion between 2021 and 2025. One company set to benefit is Tenable (TENB 0.45%), the industry leader in threat detection and vulnerability management. Its recent full-year 2021 earnings report offered investors many reasons to get excited about its stock, and Wall Street is certainly on board. Here's why.

Number one in all the right places

Tenable is the owner of Nessus, the most deployed vulnerability management tool in the cybersecurity industry. It serves 30,000 organizations and boasts over 2 million individual downloads, with its popularity stemming from its customization potential. Nessus users can build upon the platform to suit their specific circumstances, making it perfect for businesses of any size.

In addition to being No. 1 in adoption, Nessus offers the most coverage of any platform, with protection against over 68,000 common vulnerabilities and exposures (CVEs). The U.S. government's list of CVEs recently topped 180,000, and it's constantly changing, but Nessus is leading the race among its peers. And since detection accuracy is critical, Nessus also tops that list, with the lowest rate of false positives in the industry.

But Nessus is a comprehensive tool, and Tenable has leveraged its market-leading attributes to build specific solutions for different industries. Car manufacturers, for example, run highly automated processes that can be vulnerable to digital threats, and the Tenable.ot platform helps protect both information technology and operational technology systems. Similarly, Tenable offers a solution for financial services that the top 10 organizations globally are using.

Tenable's big 2021

Tenable's revenue crossed the half-billion-dollar mark for the first time in its history during 2021, with its full-year figure of $541 million representing 23% year-over-year growth. But that's not the most striking feature of the company's operational performance. Over the last few years, it has attracted customers -- at an incredibly rapid pace -- who spend $100,000 or more annually.

Data source: Tenable. CAGR = compound annual growth rate.

It highlights the desperate need for vulnerability management tools among large organizations, which makes sense, given the modern threat landscape. In fact, in a survey conducted in early 2021 of 500 CEOs, cybersecurity risk was ranked as the greatest threat to their organizations -- even higher than regulatory risk and climate change.

Wall Street is bullish

Tenable is a loss-making company right now (on a generally accepted accounting principles (GAAP) basis). Still, analysts expect it will turn profitable this year with $0.17 in earnings per share, followed by 141% growth in 2023 to $0.41 per share. It would be an important milestone for the company, as it has made substantial investments to expand its product line, including a new cloud-focused offering called Tenable.cs in the fourth quarter of 2021.

Wall Street is extremely upbeat about Tenable's stock. All 10 analysts who cover the company have attributed a buy rating, with a consensus share price target of $65, which is 25% higher than the stock trades today. But in January, Wall Street firm Piper Sandler raised its price target to $72, indicating a 38% upside.

But given the enormous spending on cybersecurity among global companies, investors with a long-term focus might find those price targets conservative when looking back a few years from now.