What happened
NetScout Systems (NTCT -0.16%) shareholders trounced the market this week. The cybersecurity specialist was up 15% through Thursday trading compared to a 2.2% surge in the S&P 500, according to data provided by S&P Global Market Intelligence. The gain added to positive returns for investors over the last year as NetScout is up 23% over the past 12 months.
This week's rally was powered by an earnings report that painted a bright picture on growth and earnings.
So what
NetScout announced on Thursday that sales and profits beat management's targets for the third-quarter selling period that ended in late December. "We advanced our strategic objectives and delivered solid financial results," CEO Anil Singhal said in a press release.
Part of that outperformance came from NetScout closing a few deals in Q3 that executives had expected to close in the next quarter. And the company's overall growth rate remains muted at less than 5% year over year. Still, Wall Street was happy to hear that demand is holding up for its cybersecurity platform even as economic growth rates slow.
Now what
Investors will want to watch the fourth-quarter sales trends for signs of continued strong demand from enterprises into 2023. In the event of a recession, the cybersecurity industry may be able to outperform other tech niches that involve more discretionary spending such as digital advertising. NetScout's steady growth results add support to that bullish thesis.
Yet the business isn't immune to the pressures that might arrive as IT budgets shrink. Microsoft recently noted weakness in a few of its core tech niches, for example. NetScout isn't nearly as diversified or well capitalized, and so the stock could see more volatile price swings if economic conditions worsen.
Still, this week's report eased a few of investors' concerns by showing clear sales growth through the end of fiscal 2023 and a surprisingly strong profit margin. If NetScout can protect this positive momentum, then the stock could continue outperforming the market from here.
