Emerging technologies such as artificial intelligence, cloud, and blockchain have amplified the need for internet security solutions.
In light of this, I think it could be wise to capitalize on the industry’s tailwinds by investing in quality security stocks Check Point Software Technologies Ltd. (CHKP), Tenable Holdings, Inc. (TENB), and Qualys, Inc. (QLYS), which exhibit robust profit margins.
Most organizations utilize cloud technology to store critical data because it allows them greater flexibility in sharing and accessing data. The key element driving the security software market growth is the technical change from old systems to modern security systems, as well as an increase in the use of personal devices by employees of an organization.
Also, using cloud technology by government sectors such as the military and railway has further boosted demand for this market. The security software market is expected to grow at a CAGR of 13.9% until 2029.
Moreover, the increasing adoption of enterprise security solutions is expected to drive the cyber security market growth in the upcoming years. The global cyber security market is projected to grow to $424.97 billion in 2030, at a CAGR of 13.8% between 2023 and 2030.
Let’s discuss the stocks mentioned above in detail:
Check Point Software Technologies Ltd. (CHKP)
Headquartered in Tel Aviv, Israel, CHKP develops, markets, and supports a range of products and services for IT security worldwide. The company offers a multilevel security architecture, cloud, network, mobile devices, endpoint information, and IOT solutions.
On August 10, 2023, CHKP signed a definitive agreement to acquire Perimeter 81, a pioneering Security Service Edge (SSE) company.
With this acquisition, CHKP will help organizations accelerate the adoption of secure access across remote users, sites, cloud, data centers, and the internet, all while aiming to deliver the most secure and fastest SSE solution in the market. Under the terms of the agreement, CHKP will acquire Perimeter 81 for approximately $490 million on a cash-free, debt-free basis.
CHKP’s trailing 12-month levered FCF margin of 31.03% is 352% higher than the 6.87% industry average. Its trailing 12-month gross profit margin of 88.09% is 81% higher than the 48.66% industry average.
CHKP’s total revenues increased 3.1% year-over-year to $588.70 million for the fiscal second quarter that ended June 30, 2023. Its non-GAAP net income increased 13.9% year-over-year to $238.30 million. Also, non-GAAP EPS increased 22% year-over-year to $2.
Analysts expect CHKP’s EPS to rise 14.2% year-over-year to $2.02 in the current quarter ending September 2023. Its revenue is expected to increase 2.5% year-over-year to $592.25 million for the same quarter. Also, the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 9.4% over the past three months and 71.3% year-to-date to close the last trading session at $133.48.
CHKP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
CHKP has an A grade for Quality. It ranks #2 out of 21 stocks in the Software - Security industry.
In addition to the POWR Ratings highlighted above, one can see CHKP’s ratings for Growth, Value, Momentum, Stability, and Sentiment here.
Tenable Holdings, Inc. (TENB)
Headquartered in Columbia, Maryland, TENB provides cyber exposure solutions for in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan.
On August 9, 2023, TENB announced the launch of ExposureAI, new generative AI capabilities and services across the Tenable One Exposure Management Platform. TENB has also introduced Tenable Exposure Graph, a scalable data lake powered by Snowflake Inc. (SNOW), that fuels the ExposureAI engine.
On August 1, 2023, TENB announced new enhancements to Tenable OT Security, helping customers strengthen the security of their OT environments through the broadest and deepest visibility, granularity, management, and control of IT/OT and IoT assets on the market.
Tenable OT Security now features increased visibility of Building Management Systems (BMS), including devices such as security cameras, HVAC systems, badge scanners and entrance security systems, lighting control, programming systems, and other assets.
TENB’s trailing 12-month levered FCF margin of 17.91% is 160.9% higher than the 6.87% industry average. Its trailing 12-month gross profit margin of 76.75% is 57.5% higher than the 48.72% industry average.
TENB’s revenue increased 19% year-over-year to $195 million in its fiscal second quarter that ended June 30, 2023. Its non-GAAP net income rose 338.3% year-over-year to $26.30 million. Moreover, non-GAAP earnings per share improved 340% year-over-year to $0.22.
Street expects TENB’s revenue to increase 13.5% year-over-year to $198.40 million in the fiscal third quarter ending September 2023. Its EPS is estimated to increase 23.2% year-over-year to $0.18 in the same quarter. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 18.8% over the past three months to close the last trading session at $44.43.
TENB’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
TENB has an A grade for Growth and a B in Sentiment and Quality. It ranks #3 in the same industry.
Click here to access additional TENB ratings (Value, Momentum, and Stability).
Qualys, Inc. (QLYS)
QLYS provides cloud-based information technology (IT), security, and compliance solutions in the United States and internationally.
On August 2, 2023, QLYS announced that its industry-leading capabilities, including Qualys Vulnerability Management, Detection, and Response (VMDR), will be included in Mazars’ Cybersecurity Managed Services.
Mazar’s customers will gain unprecedented insights into distinct risk postures to prioritize and remediate their most critical vulnerabilities through this partnership.
QLYS’ trailing 12-month levered FCF margin of 33.95% is 394.5% higher than the 6.87% industry average. Its trailing 12-month gross profit margin of 79.52% is 63.4% higher than the 48.66% industry average.
QLYS’ revenues increased 14.4% year-over-year to $137.21 million in its fiscal second quarter (ended June 30, 2023). The company’s net income increased 33% year-over-year to $35.38 million, while its net income per share grew 41.8% year-over-year to $0.95.
QLYS’ EPS is expected to rise 20.4% year-over-year to $1.13 in the current quarter ending September 2023. Its revenue is expected to increase 12.3% year-over-year to $141.05 million for the same quarter. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 31.8% year-to-date to close its last trading session at $147.91.
It’s no surprise that the stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
QLYS has an A grade for Quality. It has ranked #5 within the same industry.
Beyond what is stated above, we’ve also rated QLYS for Growth, Value, Momentum, Stability, and Sentiment. Get all QLYS ratings here.
What To Do Next?
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CHKP shares were trading at $132.79 per share on Thursday morning, down $0.69 (-0.52%). Year-to-date, CHKP has gained 5.26%, versus a 16.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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