The rising importance of cloud security can be attributed to the increasing threat landscape and the widespread adoption of cloud services, which organizations are prioritizing to protect their data, infrastructure, and reputation in an increasingly digital world.
Given this backdrop, investors could consider adding cloud security stocks, such as Fortinet, Inc. (FTNT), Check Point Software Technologies Ltd. (CHKP), and Trend Micro Incorporated (TMICY), to their watchlist. Before diving deeper into the fundamentals of these stocks, let's discuss what's shaping the cloud security industry's prospects.
Cloud security has become increasingly important due to the growing reliance on cloud computing services for data storage, processing, and communications. The increasing number of cyber threats targeting cloud infrastructure is driving organizations to prioritize cloud security measures to protect their data and infrastructure. With the increasing demand for software solutions, Gartner predicts software spending to grow 13.9% year-over-year to $1.04 trillion this year.
Additionally, the increasing adoption of cloud services by organizations of all sizes and in various industries has made it crucial to ensure the security of cloud environments. With more data being stored and processed in the cloud, the potential risks and consequences of a security breach are higher than ever.
Cloud technology helps counter cyber threats such as data loss, breaches, and insecure APIs, which have become more targeted and advanced. The cloud security software market is estimated to reach $102.59 billion by 2029, growing at a CAGR of 17.6%.
In light of these encouraging trends, let's examine the fundamentals of the three Software - Security stock picks, starting with the third choice from an investment point of view.
Stock #3: Fortinet, Inc. (FTNT)
FTNT provides cybersecurity and convergence of networking and security solutions worldwide. It offers secure networking solutions focusing on the convergence of networking and security, network firewall solutions, wireless LAN solutions, and secure connectivity solutions.
On June 10, 2024, FTNT announced that it entered into a definitive agreement to acquire Lacework, the data-driven cloud security company. FTNT intends to integrate Lacework's CNAPP solution into its Unified SASE offering, forming one of the most comprehensive, full stack AI-driven cloud security platforms available from a single vendor.
This will help customers identify, prioritize, and remediate risks and threats in complex cloud-native infrastructure from code to cloud.
On May 23, 2024, FTNT and FC Barcelona signed a sponsorship agreement through which FTNT became Espai Barça's new Official Cybersecurity Partner for the next three seasons, until 30 June 2028. FC Barcelona will enable a secure digital environment for its Spotify Camp Nou facilities leveraging FTNT's industry-leading Security Fabric platform, which will serve as a global reference for technological innovation in the world of sport and entertainment.
FTNT's trailing-12-month asset turnover ratio of 0.74x is 20.8% higher than the industry average of 0.62x. Its trailing-12-month EBIT margin and net income margin of 23.80% and 22.23% are 407.4% and 670.6% higher than the industry averages of 4.69% and 2.88%, respectively.
FTNT's total revenue for the fiscal first quarter that ended March 31, 2024, amounted to $1.35 billion, up 7.2% year-over-year. The company's non-GAAP net income stood at $333.90 million and $0.43 per share, up 23.8% and 26.5% over the prior-year quarter, respectively. As of March 31, 2024, FTNT's total current liabilities amounted to $3.80 billion, compared to $3.72 billion as of December 31, 2023.
For the quarter ending June 30, 2024, FTNT's revenue is expected to increase 8.7% year-over-year to $1.41 billion. Its EPS for the quarter ending December 31, 2024, is expected to decline 4.8% year-over-year to $0.49. The stock has declined 16.3% over the past year but gained 5.3% over the past six months to close the last trading session at $60.90.
FTNT's POWR Ratings reflect this mixed outlook. It has an overall rating of C, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
FTNT has a C grade for Growth, Value, Momentum, Stability, and Sentiment. It is ranked #9 out of 23 stocks in the Software - Security industry. Click here to see FTNT's Quality rating.
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, endpoints information, and IOT solutions.
On June 11, 2024, CHKP announced CloudGuard WAF-as-a-Service, an automated, AI-powered, web application firewall, that offers organizations a solution to prevent cyber threats and protect web applications from unauthorized access and data breaches. Prioritizing prevention, simplicity and scalability, it delivers an easy and cost-effective way to efficiently secure cloud applications and APIs.
On May 22, 2024, CHKP reinforced its Web Application Firewall with the powerful API Discovery feature, aimed at strengthening organizations' cloud assets. This innovative tool, combined with its cloud native prevention first capabilities positioned CHKP as a leading performer in GigaOm's latest Radar for Application and API Security.
CHKP's trailing-12-month net income margin of 34.33% is considerably higher than the industry average of 2.88%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 29.80% and 15.26% are 609% and 788.7% higher than the industry averages of 4.20% and 1.72%, respectively.
For the fiscal first quarter that ended March 31, 2024, CHKP's total revenues and non-GAAP operating income stood at $598.80 million and $252 million, up 5.8% and 5.7% year-over-year, respectively. For the same quarter, its non-GAAP net income and earnings per share increased 7.6% and 13.3% over the prior-year quarter to $234.50 million and $2.04, respectively.
Street expects CHKP's EPS and revenue for the quarter ending June 30, 2024, to increase 8% and 5.9% year-over-year to $2.16 and $623.38 million, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters. CHKP has gained 20.4% over the past year, closing the last trading session at $157.63.
CHKP's POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
CHKP has an A grade for Quality. Within the same industry, it is ranked #5. Get CHKP's Growth, Value, Momentum, Stability, and Sentiment ratings here.
Stock #1: Trend Micro Incorporated (TMICY)
Headquartered in Tokyo, Japan, TMICY develops and sells security-related software for computers and related services internationally. It offers platforms, such as vision one platform, attack surface management, extended detection and response, cloud security, endpoint security, network security, email security, OT/ICS security, and threat intelligence.
On June 6, 2024, TMICY unveiled its first consumer security solutions tailored to safeguard against emerging threats in the era of AI PCs. TMICY will bring these advanced capabilities to consumers in late 2024.
On June 3, 2024, TMICY announced its latest breakthrough in network detection and response (NDR) technology: Inline NDR. The cutting-edge technology is available via the Trend Vision One platform, where it improves detection and response across all security functions rather than operating as an isolated solution.
TMICY's trailing-12-month Return on Total Capital of 13.52% is 409.5% higher than the industry average of 2.65%. Similarly, its trailing-12-month EBIT margin and EBITDA margin of 13.75% and 25.22% are 193.1% and 163.1% higher than the industry average of 4.69% and 9.59%, respectively.
TMICY's net sales for the fiscal first quarter that ended March 31, 2024, stood at ¥65.93 billion ($418.22 million), up 12.3% over the prior-year quarter. Its operating income increased 27% year-over-year to ¥12.13 billion ($76.93 million).
In addition, its net income attributable to owners of the parent rose 68.7% from the year-ago quarter to ¥10.75 billion ($68.22 million). Also, its net income per share grew 72% year-over-year to ¥78.83.
Analysts expect TMICY's revenue for the quarter ending September 30, 2024, to increase 3.4% year-over-year to $438.50 million. Its EPS for the quarter ending June 30, 2024, is expected to rise 49.4% year-over-year to $0.42. Over the past nine months, the stock has gained 3.2%, closing the last trading session at $45.13.
TMICY's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #4 in the Software - Security industry. Click here for the additional POWR Ratings of TMICY (Growth, Momentum, and Sentiment).
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FTNT shares were trading at $59.66 per share on Tuesday afternoon, down $1.24 (-2.04%). Year-to-date, FTNT has gained 1.93%, versus a 15.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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