The cybersecurity market is expected to grow significantly owing to the growing need for security software in IT sectors as well as hardware and services. Given this backdrop, investors could keep a watchful eye on fundamentally strong software-security stocks, Fortinet, Inc. (FTNT), Qualys, Check Point Software Technologies Ltd. (CHKP), and Clear Secure, Inc. (YOU).
The rise in cyber-attacks, driven by the expansion of e-commerce platforms, the advent of smart devices, and the implementation of cloud technologies, is significantly boosting cybersecurity market growth. Additionally, the growing use of Internet of Things (IoT) devices and intelligent technologies is expected to elevate cyber threat incidents.
Consequently, end-user organizations are likely to adopt advanced cybersecurity solutions to reduce the risk of cyber-attacks, thereby fostering the growth of the cybersecurity market. The global cyber security market is projected to grow at a CAGR of 12.3% by 2030.
Given these encouraging trends, let’s look at the fundamentals of the top three Software - Security stocks, beginning with the third choice.
Stock #3: Fortinet, Inc. (FTNT)
FTNT offers cybersecurity and networking solutions globally. The company’s FortiGate hardware and software licenses provide various security and networking functions. It also offers the FortiSwitch product family, which provides secure switching solutions for connecting customers to their end devices.
On June 10, 2024, FTNT announced that it had entered into a definitive agreement to acquire Lacework, the data-driven cloud security company.
FTNT intends to integrate Lacework’s CNAPP solution into Fortinet’s Unified SASE offering, forming one of the most comprehensive, full-stack AI-driven cloud security platforms available from a single vendor. This would help customers identify, prioritize, and remediate risks and threats in complex cloud-native infrastructure from code to cloud.
On May 2, 2024, FTNT unveiled a new next-generation firewall (NGFW) appliance with the industry-leading security and networking performance needed to serve as the backbone of the modern campus.
These features enable organizations to efficiently support and secure the growing volume of data-rich traffic and cloud-based applications within campus environments. This new next-gen firewall is expected to empower customers to meet evolving business needs, mitigate risk, and ensure a positive user experience.
FTNT’s trailing-12-month gross profit margin of 77.13% is 56.4% higher than the industry average of 49.30%. Also, its trailing-12-month EBIT margin of 23.80% is 382% higher than the industry average of 4.94%. Likewise, its trailing-12-month EBITDA margin of 25.92% is 162.2% higher than the industry average of 9.89%.
FTNT’s total revenue increased 7.1% year-over-year to $1.35 billion for the first quarter that ended March 31, 2024. Total gross profit grew 9.9% from the year-ago value to $1.05 billion. The company’s non-GAAP operating income was $386.10 million, up 15.6% from the prior year’s quarter.
In addition, non-GAAP net income came in at $333.90 million, or $0.43 per share, showing increases of 23.1% and 26.5% year-over-year, respectively.
Analysts predict FTNT’s revenue for the second quarter (ended June 2024) to increase 8.7% year-over-year to $1.41 billion. Its EPS for the ongoing quarter is expected to grow 7.2% from the prior year’s quarter to $0.41. Moreover, the company has an excellent earnings surprise history, surpassing consensus EPS estimates in each of the trailing four quarters.
FTNT’s stock has surged 5.1% over the past six months to close the last trading session at $60.73.
FTNT’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
FTNT has an A grade for Quality and a B for Sentiment. It is ranked #8 out of 23 stocks in the B-rated in the Software - Security industry.
In addition to the POWR Ratings we’ve stated above, we also have FTNT ratings for Momentum, Growth, Value, and Stability. Get all FTNT ratings here.
Stock #2: 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 June 11, 2024, CHKP announced CloudGuard WAF-as-a-Service (WAFaaS), an automated, AI-powered web application firewall that offers organizations a fully managed solution to prevent cyber threats and protect web applications from unauthorized access and data breaches.
This technology, which prioritizes prevention, simplicity, and scalability, is expected to deliver a convenient and cost-effective way to efficiently secure cloud applications and APIs.
On March 26, 2024, CHKP announced a collaboration with Microsoft that utilizes the Microsoft Azure OpenAI Service to enhance Check Point Infinity AI Copilot, marking a significant advancement in cyber security AI applications.
Infinity AI Copilot is a generative AI service that uses automation to accelerate security administration by up to 90% and increase security effectiveness through faster incident mitigation and response.
CHKP’s trailing-12-month gross profit margin of 89.03% is 80.6% higher than the industry average of 49.30%. Also, its trailing-12-month EBIT margin of 36.50% is 639.1% higher than the industry average of 4.94%. Likewise, its trailing-12-month EBITDA margin of 38.17% is 286.1% higher than the industry average of 9.89%.
CHKP's total revenues from products and security subscriptions increased 5.8% year-over-year to $598.80 million during the first quarter, which ended March 31, 2024. Its operating income was reported at $193.90 million. The company’s net income was reported at $183.90 million. Additionally, the company’s EPS increased 5.3% year-over-year to $1.60.
Street expects CHKP’s revenue for the second quarter (ending June 2024) to increase 5.9% year-over-year to $623.38 million, and its EPS for the same quarter is expected to grow 8% year-over-year to $2.16. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of CHKP have soared 34.3% over the past year to close the last trading session at $168.72.
CHKP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Quality. Within the same industry, CHKP is ranked #7.
Click here to access additional ratings of CHKP for Stability, Growth, Sentiment, Value, and Momentum.
Stock #1: Clear Secure, Inc. (YOU)
YOU operates a secure identity platform under the CLEAR brand name, primarily in the U.S. The company’s secure identity platform is a multi-layered infrastructure consisting of a front-end, including enrollment, verification, and linking, as well as a back-end.
On July 3, 2024, YOU continued to expand locations to enroll and renew consumers in the Trusted Traveler program by opening 6 new locations. YOU now has 33 TSA PreCheck enrollment locations open across the U.S.
The launch of the enrollment location at these six airports represents the ongoing expansion of YOU's national TSA PreCheck enrollment footprint. Throughout 2024, YOU will continue delivering convenience to consumers by launching additional locations and extended hours of operation for enrollment and renewals.
On May 21, 2024, YOU and Wellstar Health System, one of the largest healthcare systems in Georgia, launched a new initiative to simplify further and speed up the patient check-in process. The initial pilot site is now operational, and there are plans for expansion in the latter part of 2024.
YOU’s trailing-12-month EBIT margin of 8.82% is 78.6% higher than the industry average of 4.94%. Likewise, the stock’s trailing-12-month gross profit margin of 62.58% is 26.9% higher than the industry average of 49.30%. Its trailing-12-month ROTC of 7.10% is 158.3% higher than the industry average of 2.75%.
YOU’s revenue increased 35.3% year-over-year to $179.05 million in the first quarter that ended March 31, 2024. Its operating income came in at $23.69 million, compared to an operating loss of $15.06 million in the previous-year quarter. Its net income was $32.09 million, compared to a net loss of $8.27 million in the prior year’s quarter.
Additionally, the company’s net income per common share came in at $0.20, compared to a loss per common share of $0.06 in the same quarter of 2023.
Analysts expect YOU’s revenue for the second quarter (ended June 2024) to increase 22.7% year-over-year to $183.84 million. Its EPS is expected to rise 72.6% year-over-year to $0.26 for the same quarter. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of YOU have gained 10.5% over the past nine months to close the last trading session at $18.94.
YOU’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
YOU has an A grade for Value and a B for Growth and Quality. It is ranked #3 in the same industry.
Click here to access additional YOU ratings (Momentum, Sentiment, and Stability).
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FTNT shares were trading at $60.73 per share on Thursday afternoon, down $0.28 (-0.46%). Year-to-date, FTNT has gained 3.76%, versus a 16.76% 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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