The software security industry is thriving due to the rise in digitization, the shift to cloud services, and the increasing need for cybersecurity, secure identity platforms, and application delivery solutions to combat growing cyber threats and data privacy concerns.
Against this backdrop, it would be prudent to consider investing in fundamentally strong cybersecurity stocks such as Tenable Holdings, Inc. (TENB), Clear Secure, Inc. (YOU), and Radware Ltd. (RDWR), all of which show promising Q2 earnings outlooks for savvy investors.
In 2024, the U.S. government is boosting cybersecurity with strategic initiatives, regulations, and partnerships, as per the National Cybersecurity Strategy. These efforts will enhance defenses, support industry growth, and drive innovation, increasing demand for advanced security solutions in the cybersecurity software market.
Due to rising cyber threats, businesses are investing heavily in cloud-based services. Cloud security helps mitigate these threats with advanced features like phishing filters, automated vulnerability management, endpoint protection, Zero Trust segmentation, and data access controls. The global cloud security market revenue is projected to grow at a 26.34% CAGR, reaching $6.60 billion by 2029.
Further, cyber-attacks on businesses have highlighted the importance of software security. With ransomware and data breaches on the rise, the software security sector is poised for growth. The security services market is expected to reach $97.30 billion by 2024, growing annually at 7.92%, and resulting in a market size of $271.90 billion by 2029.
Now, let's take a closer look at the fundamentals of the three Software – Security picks, starting with the third choice.
Stock #3: Tenable Holdings, Inc. (TENB)
TENB provides cyber exposure solutions in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan. Its platforms include Tenable.io, Tenable.cs, Tenable.io Web Application Scanning, Tenable Lumin Exposure, and Tenable.asm.
On June 6, 2024, TENB announced it would acquire Eureka Security to enhance its cloud security platform with data security posture management capabilities. The acquisition aims to provide comprehensive protection across infrastructure, workloads, identities, and data for its cloud security customers.
On June 5, 2024, TENB announced a strategic alliance with Deloitte to offer advanced exposure management solutions, including vulnerability management, cloud security, and operational technology security. Deloitte will integrate TENB’s One Exposure Management Platform, Cloud Security, and OT Security into its cyber solutions portfolio.
In terms of the trailing-12-month gross profit margin, TENB’s 77.36% is 57.5% higher than the 49.11% industry average. Similarly, its 20.74% trailing-12-month levered FCF margin is 112% higher than the 9.79% industry average.
For the fiscal first quarter that ended March 31, 2024, TENB’s revenue increased 14.4% year-over-year to $215.96 million. Its non-GAAP gross profit rose 17.2% over the prior-year quarter to $174.68 million. In addition, the company’s non-GAAP net income stood at $30.44 million, up 133% from the year-ago quarter. Also, its non-GAAP earnings per share grew 127.3% year-over-year to $0.25.
Street expects TENB’s EPS and revenues for the quarter ended June 30, 2024, to increase 6.9% and 12.1% year-over-year to $0.24 and $218.53 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 5.4% to close the last trading session at $43.31.
TENB’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 23 stocks in the B-rated Software – Security industry. It has an A grade for Growth and a B for Sentiment, and Quality. Click here to see TENB’s Value, Momentum, and Stability ratings.
Stock #2: Clear Secure, Inc. (YOU)
YOU primarily operates a secure identity platform under the CLEAR brand name. Its secure identity platform is a multi-layered infrastructure consisting of front-end services, including enrollment, verification, and linking, as well as back-end services.
On July 3, 2024, YOU (CLEAR) announced the opening of six new TSA PreCheck enrollment locations, expanding their total to 33 across the U.S. This expansion aims to offer more convenient enrollment and renewal options for consumers throughout 2024.
In terms of the trailing-12-month levered FCF margin, YOU’s 33.65% is 243.8% higher than the 9.79% industry average. Likewise, its 2.87% trailing-12-month Capex / Sales is 24.1% higher than the 2.31% industry average. Additionally, its 5.13% trailing-12-month Return on Total Assets is 183.4% higher than the industry average of 1.81%.
YOU’s revenue in the first quarter that ended March 31, 2024, increased 35.3% year-over-year to $179.05 million. Its operating income came in at $23.69 million, compared to an operating loss of $15.06 million in the previous year’s quarter.
YOU’s net income was $32.09 million, compared to a net loss of $8.27 million in the previous 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 year-ago quarter.
Analysts expect YOU’s EPS and revenue for the quarter ended June 30, 2024, to increase 72.6% and 22.7% year-over-year to $0.26 and $183.84 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 13.9% to close the last trading session at $18.94.
YOU’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. It is ranked #3 in the same industry. To see YOU’s Momentum, Stability, and Sentiment ratings, click here.
Stock #1: Radware Ltd. (RDWR)
Headquartered in Tel Aviv, Israel, RDWR and its subsidiaries develop, manufacture, and market cybersecurity and application delivery solutions for cloud, on-premises, and software-defined data centers worldwide. The company operates in two segments: Radware's Core Business and The Hawks' Business.
On June 27, 2024, RDWR announced a new AI-driven, auto-learning API Protection engine designed to detect and mitigate business logic attacks in real-time. This enhanced solution continuously learns application business logic to block malicious API calls and reveal bad actors’ identities.
On June 20, 2024, RDWR announced the launch of a new cloud security service center in Paris, France, expanding its DDoS mitigation capacity to 15Tbps across a global network. This new facility aims to enhance customer resiliency, reduce traffic latency, and comply with local data privacy requirements.
In terms of the trailing-12-month gross profit margin, RDWR’s 80.10% is 63.1% higher than the 49.11% industry average.
During the first quarter that ended on March 31, 2024, RDWR reported revenue of $65.08 million, while its non-GAAP gross profit amounted to $53.34 million. The company’s non-GAAP net income and EPS came in at $6.83 million and $0.16, up 12.2% and 14.3% year-over-year, respectively.
Moreover, the company’s total assets stood at $587.21 million as of March 31, 2024, compared to $571.92 million as of December 31, 2023.
For the quarter ended June 30, 2024, RDWR’s revenue is expected to increase marginally year-over-year to $65.99 million. Its EPS for the same quarter is expected to increase 61.3% year-over-year to $0.16. Over the past six months, the stock has gained 17.5% to close the last trading session at $18.77.
RDWR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth. It is ranked #2 in the Software – Security industry. To see RDWR’s Value, Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TENB shares were trading at $43.83 per share on Friday afternoon, up $0.52 (+1.20%). Year-to-date, TENB has declined -4.84%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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