The 21st century will be one dominated by connectivity and the internet. Already, 5G technology is ushering in a new era of smart cities, remote workforces, streaming video and powering virtual reality. And that, in my opinion, puts the attention squarely on cybersecurity stocks.
Cybersecurity is critical for keeping our banking records private, our cloud services stable and our workplace and schools functional.
As the world becomes even more connected through improved technology and whatever the next decade brings, cybersecurity stocks will be even more an important part of a portfolio. Globally, the cybersecurity space was valued last year at roughly $202 billion – and is expected to show a compound annual growth rate of 12.3% through 2030.
As with all things investing, however, it’s only half the battle to understand which sectors are growing. The other half of the battle is to identify which cybersecurity stocks in a given sector are ones to buy – and conversely, which ones are the stocks to sell.
I’ve used my Portfolio Grader tool to identify seven cybersecurity stocks to sell, based on recent earning performance, analyst sentiment, buying pressure and quantitative metrics. If you’re carrying one of these stocks to sell, then it may be a good time to re-evaluate your portfolio.
Zscaler (NASDAQ:ZS) is a cloud security company that specializes in working with customers who want to keep their information safe on remote servers.
The company says it has more than 5,600 customers, including more than 25% of the Forbes Global 200 and more than 35% of Fortune 500 companies.
Zscaler posted a positive earnings report for its fiscal first quarter of 2023, but the company’s stock dropped by 20% in December after it issued conservative guidance for Q2. It says it’s expecting revenue of $364 million to $366 million, and EPS of 29 cents to 30 cents.
Meanwhile, analysts were looking for revenue of $355.3 million for Q2 and EPS of 26 cents.
Zscaler is also reorganizing the company’s sales force – which could be a concern if the newly constituted department isn’t able to successfully recompete government contracts and win new business.
Currently down nearly 29% over the last six months, making it one of the cybersecurity stocks to sell now. ZS stock has a “D” rating in the Portfolio Grader.
SentinelOne (NYSE:S) uses artificial intelligence to thwart online threats. The company’s Behavioral AI antivirus product scans for and reports malicious patterns and actions.
In theory, that sounds great. But a good premise doesn’t necessarily guarantee that you’ll have a good company or a good stock, and that’s where we run into issues with SentinelOne.
S stock is actually trading near an all-time low, having fallen 64% over the last year. The company increased revenue by 105% in the third quarter, posting $115.32 million, but it’s still losing money overall. It posted a net income for the quarter of nearly a $99 million loss. That equates to an EPS loss of 16 cents per share.
Tech companies are laying off employees right and left these days while trying to figure out a way to protect their profit margins. This isn’t a good time to invest in a company that can’t figure out how to turn a profit yet, which makes SentinelOne among the cybersecurity stocks to sell while you can.
S stock has a “D” rating in the Portfolio Grader.
Cyren (NASDAQ:CYRN) is an Israeli company that operates a “security as a service” business model. Customers pay a monthly subscription fee in exchange for Cyren’s threat intelligence information. This is a tiny company, compared to others on the list. With a market capitalization of less than $7 million and a stock price of less than 90 cents, this is truly a penny stock.
And this is a company that seems to be getting smaller by the day. CYRN stock is down 81% in the last 12 months. It’s stock actually got a boost last summer when the company announced the sale of its secure email gateway business to Content Services Group GmbH for 10 million euros, but then the stock resumed its downward spiral.
Third quarter earnings didn’t give investors much to celebrate. The company announced revenue of $5.83 million that was only a 3.8% increase from ago. Net income was a loss of $6.1 million, and profit margins fell by 105%.
There are much better places to find a cybersecurity stock than CYRN, which has a “D” rating in the Portfolio Grader.
Gen Digital (GEN)
Gen Digital (NASDAQ:GEN) is a new name on Wall Street, but it’s selling a familiar product.
The company was known until last year as Norton LifeLock, and before that, it went by Symantec Corp. It recently completed its merger with another cybersecurity company, Avast, which is when it changed to Gen Digital.
Its Norton product lines include Norton AntiVirus, Norton Security, Norton Small Business, Norton Family, Norton 360 and others.
With an established business and product line, Gen Digital is far from a growth stock, which means it’s going to be relying on its ability to reduce redundancies in the merged company to fuel additional profits.
GEN stock is down 10% over the last six months and it’s not a great bet to turn that around. It has a “D” rating in the Portfolio Grader.
Datadog’s (NASDAQ:DDOG) role in the cybersecurity space is in the “observability” market. Datadog analyzes its clients’ metrics, traces and logs to provide insight into company operations.
If a company is a victim of an attack, Datadog’s logs can help determine when the attack started and what happened, which gives clients the information they need to protect themselves from future intrusions.
Datadog went public in September 2019 at $27 per share and shot to nearly $200 per share by November 2021, but those heady days are gone. Now DDOG stock is just over $70, and has fallen 33% over the last six months.
On top of that, the company’s rate of growth is slowing dramatically. Datadog recorded a compound annual growth rate of 79% between 2017 and 2021. But until 2024 CAGR is expected to slow to 42%.
So you have a growth stock whose growth is slowing. That help explains why it has a “D” rating in the Portfolio Grader.
Okta (NASDAQ:OKTA) is a service-as-a-sales company focusing on identity management software. Through its products, companies can manage their employees’ log-ins, access gateways and implement multi-factor authentication. Those types of products help keep workers engaged with the access they need to materials while also protecting cloud-based resources from intrusions.
But unfortunately for Okta, the company’s business opportunity seems to be getting smaller by the day. Tech layoffs in 2023 have already accounted for 24,500 jobs, and that’s on top of the 47,000 employees laid off last year.
It’s notable that Okta has failed to turn a profit since becoming publicly traded in 2017, and that its operating losses continue to widen.
Okta has a “D” rating in the Portfolio Grader.
CrowdStrike’s (NASDAQ:CRWD) products are used by individuals, companies and government agencies to safeguard against cyber threats. Its Falcon platform provides network endpoint security services as a cloud-based product.
The company grew rapidly, with subscription customers increasing from 5,431 at the end of 2020 to more than 21,100 in the company’s fiscal Q3 2023.
That kind of growth is great, but the stock price hasn’t provided investors with the returns they expected. CRWD stock is down nearly 50% in the last six months. The stock traded at nearly $300 in November 2021, and now can be had for just over $100 per share.
All that said, CWRD stock has a lot going for it. The company regularly beats analysts’ expectations for both earnings per share and revenue. It’s revenue grew by nearly 53% in the last quarter to more than $580 million.
CrowdStrike looks to be a strong company that’s in an industry that doesn’t have a favorable outlook – at least for now. I wouldn’t suggest putting CrowdStrike stock in your portfolio now, but this is a company to keep an eye on should the sector show signs of a rebound.
For now, it has a “D” rating in the Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place