3 Cybersecurity Stocks That May Capitalize on CrowdStrike's Pain

September 13, 2024 at 09:46 AM EDT

Padlock. Cyber security, computer protection and digital safety symbols on digital globe 3d illustration. Abstract concept background of future technology, business globalization.

Investors are hearing much about sector rotation, particularly out of technology stocks. But if you’re considering reallocating some of your risk-on assets, you’ll want to ensure you don’t miss out on where the opportunities still lie. One area is cybersecurity.

This group of stocks is in a collective downtrend after the CrowdStrike Holdings Inc. (NASDAQ: CRWD) outage due to a software update failure. However, it’s important to note that the consequences of the CrowdStrike failure highlight how many businesses across multiple sectors now rely on cybersecurity. And that will only increase as companies try to protect themselves against more sophisticated threats, including those that may come from artificial intelligence (AI).

CrowdStrike may be a stock to buy on the dip. But with the company projecting a $60 million hit to sales due to the software failure, you may want to wait on that. In the meantime, here are three cybersecurity stocks that look like better options right now.

There’s Still Room to Buy Palo Alto Networks

As cloud service providers continue integrating artificial intelligence into the cloud, you can understand the concern over cyber hacking. Palo Alto Networks Inc. (NASDAQ: PANW) is one of the leading names in cybersecurity, and it’s using AI to strengthen its cybersecurity offerings.

Palo Alto is transitioning to a platformization strategy. Think of it as cybersecurity-as-a-service. Companies can turn to Palo Alto for all their cybersecurity needs instead of shopping among different platforms to handle various threats. Palo Alto disclosed it had 90 new platform customers in the company's latest quarter. The company has also successfully converted over 20% of its largest 5,000 customers to the platform model.

The question for some investors comes from the stock’s premium valuation. It trades at over 97x forward earnings but at a more reasonable 13x sales. Yet, with PANW stock up more than 40% in the last 12 months, some investors may feel that much of the company’s projected 22.5% earnings growth is priced in.

Fortinet Could Be a Firewall for Your Portfolio

Fortinet Inc. (NASDAQ: FTNT) is another company that stands to benefit from the desire of competitors to consolidate their cybersecurity offerings. A 2022 Gartner Research study showed that secure access service edge (SASE) and extended detection and response (XDR) are areas ripe for consolidation. Fortunately, these are two areas in which Fortinet excels.

FTNT stock is up approximately 34% since it last reported earnings in August. That's turned the stock positive for the year and pushed its 12-month gain to over 20%.

Like Palo Alto Networks, Fortinet has a high valuation with a forward P/E ratio of over 45x. However, unlike PANW stock, analysts believe there may be some downside risk to FTNT stock at its current price.

The concern seems to be management’s commentary about long sales cycles that are stoking fears of a revenue slowdown. This is particularly true when management declined to revise its guidance higher.

It may, however, be a prudent move to lower expectations at a time when its unclear what the state of capital expenditures (CapEx) is likely to be. Investors may want to focus instead on the company’s industry leading profit margins as a reason to consider FTNT stock.

SentinelOne May Offer Investors the Most Upside

Continuing the theme of platformization, SentinelOne Inc. (NYSE: S) offers the Singularity platform. This is an integrated approach to cybersecurity that uses many AI-powered features to protect cloud networks, employee identities, and endpoints.

In its second-quarter earnings report for fiscal year 2025, the company recorded its first positive non-GAAP earnings per share. That addresses a key issue that’s been weighing on the stock: at a time of higher interest rates, investors are fading unprofitable companies.

Equally important, the company raised its full-year revenue guidance based on strong demand for its Singularity platform. Companies looking for an alternative to CrowdStrike are also considering the company. This growth confirms that SentinelOne has been growing at a faster rate than many of its industry peers. It just needed some time before it became profitable.

Analysts continue to have a Moderate Buy rating on S stock and are being slow to raise their price targets. Another positive earnings report or two may change that.

About Us

About Cabling Installation & Maintenance

Contact Cabling Installation & Maintenance

Editorial

Advertising and Sponsorship Sales

Subscriptions and Memberships

Feedback/Problems

3 Cybersecurity Stocks That May Capitalize on CrowdStrike's Pain

There’s Still Room to Buy Palo Alto Networks

Fortinet Could Be a Firewall for Your Portfolio

SentinelOne May Offer Investors the Most Upside

More News