The cybersecurity sector is often considered an evergreen one because most companies generally won't lower their digital defenses to save a few dollars. It's also well-poised to expand over the next decade as cyberattacks become more frequent, more complex, and more difficult to counter.
According to Fortune Business Insights, the global cybersecurity market could enjoy a compound annual growth rate (CAGR) of 14% from 2023 to 2030. I believe five of this sector's top stocks -- Palo Alto Networks (PANW +0.53%), CrowdStrike (CRWD +1.37%), Zscaler (ZS +0.26%), CyberArk (CYBR +0.00%), and Tenable (TENB +1.68%) -- could be great long-term plays on that secular trend.
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The jack-of-all-trades: Palo Alto Networks
With over 80,000 enterprise customers, Palo Alto Networks is one of the largest cybersecurity companies in the world. It operates three main platforms: Strata for its next-gen firewalls and on-site networking appliances; Prisma for its cloud-based security services; and Cortex for its artificial intelligence (AI)-driven threat detection tools.
NASDAQ: PANW
Key Data Points
Most of Palo Alto's recent growth has been driven by its "next-gen security" (Prisma and Cortex) services. Its growth cooled off over the past year as the macro headwinds made it tougher to secure new customers, but it continues to lock customers into "deferred billings" contracts that can be paid off at a later date. That forward-thinking strategy ensures its growth will stabilize and accelerate as the macro environment warms up again.
Analysts expect the company's revenue and adjusted earnings to rise 19% and 24%, respectively, in fiscal 2024 (which ends this July). Its stock might not seem cheap at 63 times forward earnings, but its robust and predictable growth arguably justifies that higher valuation. It should also remain one of the most well-balanced cybersecurity plays over the next decade.
The cloud-native challengers: CrowdStrike and Zscaler
Unlike Palo Alto Networks, which still deploys on-site appliances for some of its services, CrowdStrike and Zscaler are both cloud-native cybersecurity companies that provide all of their tools as subscription-based cloud services. That approach is cheaper, easier to scale, and requires no on-site maintenance.
NASDAQ: CRWD
Key Data Points
CrowdStrike's platform Falcon provides a wide range of endpoint security services. Zscaler's platform mainly provides "zero trust" tools that treat everyone -- including a company's CEO -- as a potential threat. It was harder for both companies to gain new customers in this challenging macro environment, but they're still growing a lot faster than most traditional cybersecurity companies.
Analysts expect CrowdStrike's revenue and adjusted earnings to grow 36% and 92%, respectively, in fiscal 2024 (which ends this month). They also expect Zscaler's revenue to adjusted earnings to rise 30% and 38%, respectively, in fiscal 2024 (which ends this July).
NASDAQ: ZS
Key Data Points
CrowdStrike and Zscaler trade at 78 times and 100 times forward earnings, respectively, and those high multiples could limit their near-term gains in this bumpy market. But over the long term, both companies should continue to grow as they expand their cloud-native ecosystems and disrupt their legacy on-site peers. Therefore, investors who stick with these two volatile cloud plays over the next decade could be well-rewarded as the cybersecurity market evolves.
The internal threat detectors: CyberArk and Tenable
Many cybersecurity platforms shield companies from external threats, but internal threats can also lead to disastrous data breaches. CyberArk and Tenable both address those internal threats to make sure a company's house is in order.
NASDAQ: CYBR
Key Data Points
CyberArk's privileged access management (PAM) platform protects a company from disgruntled employees and corporate spies. Tenable's core platform Nessus scans a company's infrastructure for security vulnerabilities, like misconfigured software and weak passwords. That proactive approach could prevent attacks before they occur.
These two companies don't attract as much mainstream attention as Palo Alto Networks or CrowdStrike but are also growing at a steady pace. Analysts expect CyberArk's revenue to grow 25% this year as its adjusted earnings -- which were previously weighed down by the expansion of its cloud-based services -- turn profitable again. Its stock trades at 139 times forward earnings, but its rising profits could quickly compress those high valuations.
NASDAQ: TENB
Key Data Points
Analysts expect Tenable's revenue and adjusted earnings to rise 16% and 84%, respectively, this year. Its stock isn't a bargain at 58 times forward earnings, but its ongoing expansion of Tenable One -- which bundles a lot of its services into a single subscription-based platform -- could fuel its growth over the next 10 years.
