Since June 2024, Tenable has been in a holding pattern, posting a small return of 4.2% while floating around $40.78. This is close to the S&P 500’s 6.1% gain during that period.
Is now the time to buy Tenable, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.We're cautious about Tenable. Here are two reasons why there are better opportunities than TENB and a stock we'd rather own.
Why Is Tenable Not Exciting?
Founded in 2002 by three cybersecurity veterans, Tenable (NASDAQ: TENB) provides software as a service that helps companies understand where they are exposed to cyber security risk and how to reduce it.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last three years, Tenable grew its sales at a 19.8% compounded annual growth rate. Although this growth is solid on an absolute basis, it fell slightly short of our benchmark for the software sector. 
2. Operating Losses Sound the Alarms
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Although Tenable broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3.9% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Tenable reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.
Final Judgment
Tenable isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 5.1× forward price-to-sales (or $40.78 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d recommend looking at FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.
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