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Near-Term Prospects Look Encouraging for Security Industry
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The Zacks Security industry comprises companies offering on-premise and cloud-based security solutions. These can be used to identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, to name a few.
Industry participants offer different types of security solutions, most of which can be used interchangeably. These solutions can be roughly broken down into the following types:
Computer Security: These solutions provide protection from vulnerabilities in both software and hardware of a computer system. A computer can get infected via non-web things like USB cables, which can then affect the LAN and other systems, damaging important files.
Cybersecurity: This umbrella term includes sections like web security, network security, application security, container security and information security.
Information Security: This is concerned with any form of data security issue, be it physical data (included under computer security), or digital data (considered part of cyber security). Physical data security issue can be present in non-computer devices, such as telephones.
Here are the four major themes in the industry:
Frequent cyber-attacks have increased the demand for security solutions. The worrisome trend has not only affected certain companies, but also threatened the national security of some countries. Firms operating in the security industry are positioned to benefit immensely as protection against spear phishing, credential-based attack, account takeover and ransomware attacks, among others, has become the need of the hour.
Enterprises are realizing the need for stricter security measures, which is pushing them to increase spending in this space. Increased investments are also driven by ongoing digital transformation and proliferation of smart connected devices supported by AI and its tools like ML. However, growing incidents of AI and ML-driven advanced security attacks or “smart attacks” have become a headwind for industry participants, resulting in huge spending on advanced security solutions. With the enterprise IT spending on security projected to reach $1.86 billion in 2019 by Gartner, up 12.4% from 2018, prospects for the industry participants look bright from a near-term perspective, as it spells rise in sales of security products. Moreover, Gartner forecasts that enterprise spending on cloud security particularly will increase four times from last year to reach $4 million in 2019. Growing enterprise IT spending on security is being driven by mounting pressure on chief information security officers to take action against rising incidents of advanced security breaches.
The ever-increasing demand for network, data and cloud security solutions, makes revenues for the industry participants pretty stable. As more or more enterprises transition to the cloud, legacy security solutions are at the risk of becoming less relevant. However, security technologies related to network like firewalls and host-based security tools, among others, cannot be implemented effectively on the cloud, which is a setback for cybersecurity providers. Moreover, growing adoption of cloud-native technologies, such as containers and serverless infrastructure, particularly in DevOps, is a key catalyst. The spurt in containerized applications, running both on-premises and in the cloud, is boosting the container security market. Per Arcluster, the container security market is estimated to touch $2.25 billion by 2023.
The growing number of connected devices among enterprises calls for efficient management and stronger security in their IoT landscape. Currently, IoT focuses mainly on device profiling and inventory, neglecting the need to detect and prevent advanced attacks. This has created a security gap and the perfect opportunity for cybercriminals to launch the fifth and sixth generation of cyberattacks to hack into devices, distort and influence their operation or obtain critical infrastructure to generate large-scale damage. Per MarketsandMarkets, global IoT security market size is anticipated to reach $35.2 billion by 2023, witnessing a CAGR of 33.7% during 2018-2023. Growing number of ransomware attacks on IoT devices worldwide and increasing IoT security regulations are among the major reasons driving the IoT security market.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #13, which places it at the top 5% of 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, S&P 500
The Zacks Security industry has outperformed the Zacks S&P 500 as well as its own sector in the past year.
The stocks in this industry have collectively gained 29.5% compared with the Zacks Computer and Technology sector’s growth of 22.9% and the S&P 500’s rally of 17%.
One Year Price Performance
Industry’s Current Valuation
On the basis of price-to-sales ratio (P/S), which is a commonly used multiple for valuing the Security stocks, the industry is currently trading at 8.84X, higher than the S&P 500’s 3.36X and the sector’s 3.99X. Over the last five years, the industry has traded as high as 11.67X, as low as 6.20X and recorded a median of 7.87X, as the charts below show.
Price-to-Sales Ratio (TTM)
Price-to-Sales Ratio (TTM)
Stocks to Consider
Given the rising sophistication of cybercrimes and data breaches, higher spending on security solutions and increasing threats related to digital transformation across most end markets should continue to drive growth for the industry participants.
Foster City, CA -based Qualys, Inc. (QLYS - Free Report) has gained 22.6% in the past year and currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 9.2% to $2.25 over the past 30 days.
Headquartered in Sunnyvale, CA, Fortinet (FTNT - Free Report) has returned 53.3% in the past year and currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 6.7% to $2.4 over the past 30 days.
Tikva, Israel-based CyberArk Software Ltd. (CYBR - Free Report) has gained 77.2% in the past year and carries a Zacks Rank #2. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 13.5% to $2.6 over the past 30 days.
Tel Aviv, Israel-based Radware Ltd. (RDWR - Free Report) has gained 7.3% in the past year and carries a Zacks Rank #2. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 10.4% to 85 cents over the past 30 days.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Near-Term Prospects Look Encouraging for Security Industry
The Zacks Security industry comprises companies offering on-premise and cloud-based security solutions. These can be used to identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, to name a few.
Industry participants offer different types of security solutions, most of which can be used interchangeably. These solutions can be roughly broken down into the following types:
Computer Security: These solutions provide protection from vulnerabilities in both software and hardware of a computer system. A computer can get infected via non-web things like USB cables, which can then affect the LAN and other systems, damaging important files.
Cybersecurity: This umbrella term includes sections like web security, network security, application security, container security and information security.
Information Security: This is concerned with any form of data security issue, be it physical data (included under computer security), or digital data (considered part of cyber security). Physical data security issue can be present in non-computer devices, such as telephones.
Here are the four major themes in the industry:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #13, which places it at the top 5% of 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, S&P 500
The Zacks Security industry has outperformed the Zacks S&P 500 as well as its own sector in the past year.
The stocks in this industry have collectively gained 29.5% compared with the Zacks Computer and Technology sector’s growth of 22.9% and the S&P 500’s rally of 17%.
One Year Price Performance
Industry’s Current Valuation
On the basis of price-to-sales ratio (P/S), which is a commonly used multiple for valuing the Security stocks, the industry is currently trading at 8.84X, higher than the S&P 500’s 3.36X and the sector’s 3.99X.
Over the last five years, the industry has traded as high as 11.67X, as low as 6.20X and recorded a median of 7.87X, as the charts below show.
Price-to-Sales Ratio (TTM)
Price-to-Sales Ratio (TTM)
Stocks to Consider
Given the rising sophistication of cybercrimes and data breaches, higher spending on security solutions and increasing threats related to digital transformation across most end markets should continue to drive growth for the industry participants.
Here, we are presenting four stocks in the Zacks Security industry that flaunts either a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Foster City, CA -based Qualys, Inc. (QLYS - Free Report) has gained 22.6% in the past year and currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 9.2% to $2.25 over the past 30 days.
Headquartered in Sunnyvale, CA, Fortinet (FTNT - Free Report) has returned 53.3% in the past year and currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 6.7% to $2.4 over the past 30 days.
Tikva, Israel-based CyberArk Software Ltd. (CYBR - Free Report) has gained 77.2% in the past year and carries a Zacks Rank #2. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 13.5% to $2.6 over the past 30 days.
Tel Aviv, Israel-based Radware Ltd. (RDWR - Free Report) has gained 7.3% in the past year and carries a Zacks Rank #2. The Zacks Consensus Estimate for its current fiscal-year earnings has increased 10.4% to 85 cents over the past 30 days.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>