As internet penetration grows along with the increase in digital transformation, online security threats are on the rise. The demand for advanced security solutions is expected to boost the software security industry. However, not all security stocks would be able to capitalize on the industry tailwinds.
Keeping these factors in mind, it could be wise for investors to avoid fundamentally weak security stocks SentinelOne, Inc. (S), Digimarc Corporation (DMRC), and authID Inc. (AUID).
Let’s discuss what’s happening in the software security space:
Since the pandemic, enterprises have been investing heavily on the digital transformation of their business operations. Enterprises are now relying heavily on artificial intelligence (AI) and cloud computing to streamline their operations.
However, this reliance on various technologies across their business has increased the risk of cyber-attacks, ransomware threats, malware threats, and others. According to Check Point Research, there was a 38% increase in global cyber-attacks last year compared to 2021.
These kinds of threats provide several growth opportunities for software security companies. According to a Cybersecurity Ventures report, the global annual cost of cybercrime is expected to be more than $8 trillion in 2023. It also expects global cybercrime costs to grow by 15% per year over the next three years, reaching $10.50 trillion annually by 2025.
The global cybersecurity market is expected to expand at a CAGR of 12.3% from 2023 till 2030.
Although big software companies are doing all they can to fend off cyberattacks, evolving nature of security risks, pose a major challenge. Moreover, small and medium enterprises are challenged by the high costs of implementing and updating cybersecurity solutions and services.
In addition, workforce shortage and skills gap, and supply chain issues are also restricting factors in the industry.
Although the growth prospects of the industry look steady, it could be wise for investors to avoid fundamentally weak software security socks S, DMRC, and AUID.
SentinelOne, Inc. (S)
S operates as a cybersecurity provider in the United States and internationally. Its Singularity Extended Detection and Response Platform delivers an artificial intelligence-powered autonomous threat prevention, detection, and response capabilities across an organization’s endpoints; and cloud workloads.
In terms of the forward EV/Sales, S’ 5.97x is 116.4% higher than the 2.76x industry average. Likewise, its 6.91x forward Price/Sales is 155.4% higher than the industry average of 2.70x.
S’ non-GAAP operating loss widened 0.9% year-over-year to $43.74 million for the fourth quarter that ended January 31, 2023. Its non-GAAP net loss narrowed 15% year-over-year to $37.39 million. Moreover, its non-GAAP net loss per share narrowed by 23.5% from the prior-year quarter to $0.13.
S’ EPS for the quarter ending April 30, 2023, is expected to remain negative. Over the past year, the stock has fallen 60.7% to close the last trading session at $15.26.
S’ weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an F grade for Stability and a D for Value, Sentiment, and Quality. Within the D-rated Software - Security industry, it is ranked last out of 22 stocks. Click here to see the other POWR Ratings of S for Growth and Momentum.
Digimarc Corporation (DMRC)
DMRC provides automatic identification solutions to commercial and government customers. The company offers Digimarc Validate, Digimarc Engage, and Digimarc Recycle.
In terms of the forward EV/Sales, DMRC’s 10.42x is 277.8% higher than the 2.76x industry average. Likewise, its 11.84x forward Price/Sales is 337.7% higher than the 2.70x industry average.
For the fiscal fourth quarter ended December 31, 2022, DMRC’s non-GAAP operating expenses increased 38.3% year-over-year to $14.26 million. The company’s non-GAAP net loss widened 62.6% year-over-year to $8.17 million, while its non-GAAP loss per common share widened 36.7% year-over-year to $0.41.
DMRC’s EPS for the quarter ending March 31, 2023, is expected to remain negative. Over the past year, the stock has fallen 30.8% to close the last trading session at $19.03.
DMRC’s POWR Ratings reflect its bleak outlook. It has an overall rating of F, which equates to a Strong Sell. It is ranked #21 in the same industry.
It has an F grade for Value and a D for Growth and Quality. Click here to see the other ratings of DMRC for Momentum, Stability, and Sentiment.
authID Inc. (AUID)
AUID operates an Identity as a Service (IDaaS) platform that delivers a suite of secure, mobile, and biometric identity solutions worldwide. The company develops an IDaaS platform to enable users to verify and authenticate their identity through a mobile phone or desktop with camera.
In terms of the trailing-12-month EV/Sales, AUID’s 5.74x is 101.8% higher than the 2.84x industry average. Likewise, its 5.11x trailing-12-month Price/Sales is 84.8% higher than the 2.77x industry average.
AUID’s net loss for the fiscal year ended December 31, 2022, widened 37.2% year-over-year to $24.23 million. The company’s adjusted EBITDA loss continuing operations widened 40.9% from the year-ago value to $11.40 million. Additionally, its net loss per share continuing operations widened 24.4% year-over-year to $0.97.
Over the past year, the stock has fallen 89.3% to close the last trading session at $0.43.
AUID’s grim prospects are reflected in its POWR Ratings. AUID has an overall rating of F, translating to a Strong Sell. It is ranked #29 out of 30 stocks in the F-rated Software - Security industry. It has an F grade for Value and Quality and a D for Growth and Momentum.
We have also given AUID grades for Stability and Sentiment. Get all AUID ratings here.
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S shares were trading at $16.40 per share on Friday afternoon, up $1.14 (+7.47%). Year-to-date, S has gained 12.41%, versus a 6.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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