In this digital age, the demand for cybersecurity solutions has surged due to the increasing global risks posed by threat actors. This necessity to safeguard data, businesses, brands, diverse industries, and even governments is more critical than ever.
Given this backdrop, quality software stocks Tenable Holdings, Inc. (TENB), Radware Ltd. (RDWR), and Trend Micro Incorporated (TMICY), trading under $50, could be wise portfolio additions now.
Endeavors to elevate efficiency within essential applications are becoming increasingly prevalent among organizations. This is anticipated to contribute to a considerable rise in software expenses. According to Gartner, Inc. (IT), software spending is anticipated to increase 14.1% year-over-year to reach $1.05 trillion in 2024.
The transformation in workplace norms over the past few years, embracing a hybrid model and a growing dependency on cloud services, have contributed significantly to the upsurge in cloud utilization. The average enterprise uses 1,427 cloud services, and the average enterprise employee utilizes up to 36 cloud services, including collaboration and file-sharing platforms.
Nevertheless, this shift poses a heightened threat of breaches, enhancing the organizations’ susceptibility to various cybersecurity challenges. Over the past year, the cybersecurity industry has drawn substantial attention, driven mainly by the escalating cyber-attack incidents that came with the rapid digitalization of operations, endorsed adoption of cloud solutions, and the proliferation of smart devices.
Expenditure on public cloud security services is projected to skyrocket to an impressive $48.90 billion by 2026. Furthermore, the global cybersecurity market is estimated to expand at a 12.3% CAGR to reach $500.70 billion by 2030.
Considering these conducive trends, let's take a look at the fundamentals of the three Software-Security picks, starting with number 3.
Stock #3: Tenable Holdings, Inc. (TENB)
TENB offers cyber exposure solutions globally, including cloud-based services like Tenable.io and Tenable.cs for assessing security risks across various attack surfaces. They also provide tools like Nessus for vulnerability assessment and Tenable.ot, an operational technology security solution.
On October 2, TENB acquired Ermetic, Ltd., an innovative cloud-native application protection platform (CNAPP) company and a leading provider of cloud infrastructure entitlement management (CIEM). The acquisition combines two cybersecurity innovators, marking an important milestone in TENB’s mission to shift organizations to proactive security.
On August 30, TENB introduced web application and API scanning capabilities in Nessus Expert, enhancing vulnerability scanning for modern web apps and APIs, including identifying OWASP Top 10 vulnerabilities and known issues in third-party components.
This expansion allows security professionals to assess web applications and APIs for vulnerabilities, improving overall security posture with fewer false positives and negatives.
TENB’s trailing-12-month cash from operations of $136.71 million is 127.5% higher than the industry average of $60.08 million. Its trailing-12-month gross profit and levered FCF margins of 76.75% and 17.91% are 57.2% and 142.9% higher than the industry averages of 48.82% and 7.37%, respectively.
In terms of forward non-GAAP P/E, TENB is trading at 67.56x, 79% lower than its five-year average of 321.72x. The stock’s forward Price/Book multiple of 15.01 is 44.8% lower than its five-year average of 27.19.
For the fiscal second quarter that ended June 30, 2023, TENB’s revenue and non-GAAP gross profit stood at $195.04 million and $157.50 million, up 18.7% and 18.2% year-over-year, respectively.
Its non-GAAP net income and non-GAAP earnings per share stood at $26.27 million and $0.22, up 340.5% and 340% year-over-year, respectively. Its un-levered free cash flow stood at $39.82 million, up 36.9% year-over-year.
Street expects TENB’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 13.5% and 23.1% year-over-year to $198.41 million and $0.18, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 16.2% year-to-date to close the last trading session at $44.31. Over the past year, it gained 20.3%.
TENB’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Quality. In the Software-Security industry, it is ranked #6 out of the 22 stocks.
To see additional POWR Ratings for Value, Momentum, Stability, and Sentiment for TENB, click here.
Stock #2: Radware Ltd. (RDWR)
Headquartered in Tel Aviv, Israel, RDWR develops, manufactures, and markets cyber security and application delivery solutions for applications in cloud, on-premise, and software-defined data centers worldwide.
On September 26, RDWR announced that it is providing DDoS protection for one of the world's top 20 leading data center providers and operators. As part of a million-dollar agreement, the industry leader selected RDWR’s Cloud DDoS Protection Service to mitigate and prevent volumetric assaults.
Industry analysts such as Aite-Novarica Group, Forrester Research, Gartner, GigaOm, KuppingerCole, and Quadrant Knowledge Solutions continue recognizing RDWR as a market leader in cyber security.
On August 29, RDWR partnered with Spark NZ, one of New Zealand’s largest digital services providers, to offer application and network security services in New Zealand. Combining RDWR's robust security solutions with Spark's managed security services could ensure continuous access to the latest expertise and state-of-the-art technology while adhering to the strictest security protocols and compliance standards.
RDWR’s trailing-12-month gross profit margin of 80.98% is 65.9% higher than the industry average of 48.82%, while its trailing-12-month CAPEX/Sales of 2.75% is 13.5% higher than the industry average of 2.42%.
In terms of forward Price/Book, RDWR is trading at 2.34x, 39.3% lower than the industry average of 3.86x. The stock’s trailing-12-month EV/Sales multiple of 1.41 is 45.4% lower than the industry average of 2.58.
For the fiscal second quarter that ended June 30, 2023, RDWR’s revenues and non-GAAP gross profit stood at $65.61 million and $53.97 million, respectively. The company’s non-GAAP operating income stood at $1.93 million.
Its non-GAAP net income and non-GAAP net earnings per share stood at $4.53 million and $0.10, respectively. Its adjusted EBITDA stood at $4.05 million. As of June 30, 2023, RDWR’s current assets stood at $381.59 million, compared to $334.42 million as of December 31, 2022.
Street expects RDWR’s revenue and EPS in the fiscal third quarter ending September 2023 to come at $61.92 million and $0.07, respectively. For the fiscal year ending December 2023, its revenue and EPS are expected to come at $260.82 million and $0.43, respectively.
The stock has gained 1.1% over the past five days to close the last trading session at $16.87.
RDWR’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
RDWR has a B grade for Quality. Within the same industry, it is ranked #5.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Stability, and Sentiment. Get all RDWR ratings here.
Stock #1: Trend Micro Incorporated (TMICY)
Headquartered in Tokyo, Japan, TMICY develops and sells computer and Internet security-related software. It offers hybrid cloud security intrusion prevention, cloud migration, network defense, security for small and medium-sized enterprises, endpoint security, and 5G security solutions.
Recently, TMICY announced a complete redesign to the company's worldwide partner program, accelerating business growth for partners and allowing them to further deliver exceptional value to end customers.
Last month, TMICY excelled in the latest ATT&CK® Evaluation performed by MITRE Engenuity. The flagship Trend Vision One™ platform swiftly detected all 19 major steps from the simulation and blocked 100% of attack events in 13 attack phases.
This impressive outcome underscores the effectiveness of TMICY's holistic platform approach, which mitigates cyber risks and combats digital threats across various customer settings. This achievement exemplifies how well-prepared Trend Vision One™ is for potentially harmful real-world cyber-attacks, successfully endorsing TMICY's commitment to cybersecurity excellence.
TMICY pays an annual dividend of $1.14 per share, translating to a dividend yield of 3.09%. Its four-year average yield is 2.88%.
TMICY’s trailing-12-month net income margin of 11.23% is 452.3% higher than the industry average of 2.03%. Its trailing-12-month ROCE and ROTC of 12.29% and 8.86% are 963.2% and 274.1% higher than the industry averages of 1.16% and 2.37%, respectively.
In terms of forward EV/EBITDA, TMICY is trading at 8.32x, 37.5% lower than the industry average of 13.31x. The stock’s forward EV/Sales multiple of 1.91 is 25.8% lower than the industry average of 2.58.
For the fiscal second quarter that ended June 30, 2023, TMICY’s net sales stood at $442.06 million, up 10.9% year-over-year. The company’s operating income increased 14.5% from the prior-year quarter to $62.78 million, while net income stood at $39.84 million.
Street expects TMICY’s revenue to increase 4.9% year-over-year in the fiscal third quarter ending September 2023 to $421.85 million. Its EPS is expected to come at $0.35.
The stock declined marginally intraday to close the last trading session at $36.85.
TMICY’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
TMICY has an A grade for Stability and a B for Value and Quality. It is ranked first within the same industry.
Click here for the additional POWR Ratings for TMICY (Growth, Momentum, and Sentiment).
What To Do Next?
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TENB shares were trading at $43.39 per share on Thursday morning, down $0.92 (-2.08%). Year-to-date, TENB has gained 13.74%, versus a 11.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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