It's only May, but 2022 has been brutal for stock market investors. Those who favor technology companies have fared the worst, with the Nasdaq 100 Technology index officially in a bear market dropping nearly 21% from its all-time high set in November last year.
But there are always bright spots in the market, even in the battered technology sector. Tenable (TENB +2.29%) is an industry-leading cybersecurity company, and it's sitting on a 4% gain for 2022. That might not sound like much, but factoring in the steep losses in the Nasdaq, Tenable is clearly outperforming its tech counterparts.
Here's why it could continue to crush the broader market.
Image source: Getty Images.
Fighting the greatest threat of all
Each year, global consulting firm PricewaterhouseCoopers surveys CEOs around the world to learn what makes them optimistic for the future, and what they perceive as their most significant business challenges.
When presented with a list of potential threats to their companies over the next 12 months, these leaders ranked cybersecurity risks as their top concern. It beat out other options like economic volatility and climate change.
It's no surprise companies are flocking to cybersecurity specialists like Tenable, which offers a suite of advanced tools in the threat detection space. In fact, its Nessus platform is the most deployed vulnerability management software in the industry, protecting 30,000 organizations and amassing over 2 million downloads.
Nessus is ranked No. 1 in coverage, protecting against over 69,000 common vulnerabilities and exposures. It also takes the top spot for accuracy, with the lowest false-positive rate in the cybersecurity industry. Tenable has managed to leverage the success of Nessus into a portfolio of specialized security products, focused on at-risk industries like manufacturing and financial services.
NASDAQ: TENB
Key Data Points
Big spenders lead the way
Tenable has grown its annual revenue at a compounded rate of 34% since 2016. In its recent Q1 2022 earnings report, the company also issued revenue guidance for the full year of $676 million, representing somewhat slower growth of 22% compared to 2021.
But there's evidence that the appetite for advanced cybersecurity tools is growing at a much faster pace within large organizations. Tenable's growth in customers who spend at least $100,000 per year with the company paints a very clear picture.
If this trend continues, Tenable has an opportunity to operate at a much greater scale over time. It's more cost-effective for the company to generate $1 million in revenue from 10 large customers, as opposed to 100 smaller ones. It requires fewer support staff, less money spent on marketing, fewer contracts, and therefore lower legal costs. Those savings could be diverted to research and development, or potentially flow to the bottom line over time.
Wall Street bets on more strength
Tenable has garnered a rather rare consensus on Wall Street. Of the 18 analysts covering the stock, not a single one recommends selling. They're all bullish, with 17 rating the company a buy, and one attributing an overweight rating.
Zooming into the shorter-term picture, Tenable delivered a solid performance in Q1 2022. It grew revenue by 29% year over year, and total billings by 31% -- the latter of which could top $770 million by the end of 2022. Billings are eventually expected to convert into revenue, so it provides investors with a looking glass into Tenable's future sales.
In a volatile environment like the present, Wall Street loves to see profits. Tenable delivered non-GAAP earnings of $0.34 per share in 2021, and followed it up with $0.06 in Q1 2022. The company is still investing in growth, but its ability to do so while also maintaining profitability is probably a big reason the stock has been in favor this year.
The broader market turbulence could continue during 2022 on account of rising interest rates and geopolitical tensions, so Tenable might be the portfolio-steadier many investors are looking for. After all, the further digitization of the economy means cybersecurity risks are unlikely to go away anytime soon, especially for larger companies.
