If you are looking for growth stocks to include in your investment portfolio, a good method to use is to identify promising sectors with great long-term potential.
One of these sectors is cybersecurity.
Many companies have undergone rapid digitalisation by revamping their operating systems and upgrading their software.
As a result, these businesses require cybersecurity services to ensure that they are protected from malicious threats and intrusive cyberattacks.
We highlight four cybersecurity firms that are poised to ride on this long-term trend to grow their revenue and cash flows.
Cloudflare (NYSE: NET)
Cloudflare is a global cloud service provider that enhances the security and performance of its customers’ systems while eliminating the cost and complexity associated with managing network hardware.
The company reported a solid set of financial numbers for the first half of 2024 (1H 2024).
Revenue jumped 30.2% year on year to US$779.6 million with gross profit increasing by 33.7% year on year to S$605.5 million.
The cybersecurity firm also generated a positive free cash flow of US$73.9 million for 1H 2024, more than double the US$33.9 million churned out a year ago.
Cloudflare also reported an impressive increase in its large customer base, defined as those with more than US$100,000 in annualised revenue.
The number climbed from 1,749 in the second quarter of 2022 (2Q 2022) to 3,046 in 2Q 2024, representing a compound annual growth rate (CAGR) of 32%.
The company also boasts more than 30% of the Fortune 500 as paying customers as of 30 June 2024.
Cloudflare and Crowdstrike (NASDAQ: CRWD) announced an expanded partnership in May this year to connect their platforms to enhance security and stop breaches at scale.
Management has identified a total addressable market (TAM) of S$176 billion for Cloudflare’s developer, network, and zero trust services.
This TAM is projected to grow to US$222 billion by 2027, giving the company ample opportunities for further growth.
Cyberark Software (NASDAQ: CYBR)
Cyberark provides comprehensive identity security services across business applications, distributed workforces, and hybrid cloud environments.
The company reported a strong set of earnings for 1H 2024 with revenue rising 32.2% year on year to US$446.3 million.
Gross profit climbed 36.5% year on year to US$358.8 million.
The business also generated a positive free cash flow of US$108.5 million, a sharp reversal from the negative free cash flow of US$8.6 million.
Cyberark’s annual recurring revenue (ARR) grew 33% year on year to US$868 million, with the subscription portion of this ARR growing by 50% year on year to US$677 million.
The company has raised its guidance across all metrics with full-year revenue expected to be in the range of US$932 million to US$942 million, representing a 24% to 25% year-on-year growth.
Cyberark recently acquired Venafi, a machine identity management company, at an enterprise value of US$1.54 billion.
This acquisition will bump up Cyberark’s TAM from the current US$50 billion to around US$60 billion.
Fortinet (NASDAQ: FTNT)
Fortinet is a cybersecurity company with an integrated portfolio of more than 50 enterprise-grade products that protect half a million customers.
The company reported a stellar set of earnings for 1H 2024 with both revenue and net profit registering year-on-year increases.
Revenue increased by 9% year on year to US$2.8 billion with operating profit climbing 37.3% year on year to US$758.4 million.
Net profit surged 32% year on year to US$679.1 million.
The business generated a positive free cash flow of US$927.4 million for 1H 2024.
Fortinet estimates 2024 revenue to come in between US$5.8 billion to US$5.9 billion.
At its mid-point, this represents a year-on-year increase of around 10.3%.
Management has identified a huge TAM of US$282 billion by 2028 with the secure networking sector (US$70 billion TAM in 2028) growing at the fastest pace of 15.1% CAGR.
Palo Alto Networks (NASDAQ: PANW)
Palo Alto Networks, or PAN, offers artificial intelligence (AI) powered solutions in network security, cloud security, and security operations.
The company reported a sparkling set of earnings for its fiscal 2024 (FY2024) ending 31 July 2024.
Revenue rose 16.5% year on year to US$8 billion while operating profit soared 76.6% year on year to US$683.9 million.
Net profit catapulted more than fivefold year on year to US$2.6 billion, aided by a US$1.6 billion tax credit.
The cybersecurity firm also generated a free cash flow of US$3.1 billion for FY2024, up from the US$2.6 billion churned out a year ago.
PAN is the first pure-play cybersecurity cloud business to exceed US$700 million in ARR.
The company enjoyed a 30% year-on-year growth in annual contract value from new business, a testament to the company’s ability to attract new customers.
Management is optimistic about sustained growth in FY2025 after delivering a strong performance for FY2024.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
The post 4 Solid Cybersecurity Stocks That Can Grow Your Investment Portfolio appeared first on The Smart Investor.
