3 Top Cybersecurity Stocks to Consider Buying Right Now

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This past year has been one for the hacking record books. For example, the WannaCry ransomware infected hundreds of thousands of computers around the world and affected the National Health Service's hospitals in the United Kingdom. That was followed by the Equifax breach, which exposed the data of about 143 million people. And, most recently, Uber faces lawsuits now that it has been revealed that the company was hacked in 2016, but kept the breach secret. Criminals stole information about 57 million of its customers and drivers, and instead of notifying everyone, Uber paid a $100,000 ransom to the hackers so they would destroy the data.

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These huge breaches illustrate just how vulnerable companies are to hackers, and how important cybersecurity is becoming. Research firm Markets and Markets estimates that by 2022, cybersecurity will be a $232 billion business, up from $138 billion this year.

That's why taking a close look at Palo Alto Networks (NYSE: PANW), Fortinet (NASDAQ: FTNT) and Cyberark (NASDAQ: CYBR) could prove beneficial for investors. Each is tackling cybersecurity in its own way, and all could benefit as more companies and governments recognize the need to vigorously protect their data and networks.

Palo Alto Networks

Palo Alto Networks sells firewall solutions to more than 45,000 customers around the world, including 85 of the Fortune 100. It's just coming off of a stellar fiscal first-quarter 2018, during which it added 2,500 new customers and boosted revenues  27% year over year to $505.5 million. 

The cybersecurity company didn't bank any earnings on a GAAP basis, but on an adjusted basis -- which excludes expenses like stock-based compensation -- its earnings were $69.8 million, or $0.74 per share, which was a 36% spike year over year. 

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The strong quarter led management to boost their full-year revenue guidance; they now expect the top line to increase by 22% to 24% in 2017 and reach $2.16 billion at the midpoint.

Management credited strong customer acquisitions for the record revenue performance. And its clients individually are spending more, too. Palo Alto said its top 25 customers each spent a minimum of $23.2 million in lifetime value in the first quarter, a whopping 53% increase year over year. 

"The go-to-market changes we made in mid-year fiscal '17, which were designed to drive growth and leverage its scale, are paying dividends for us and our channel as we start off our new fiscal year," CEO Mark McLaughlin said on the earnings call.

Investors looking to add a cybersecurity stock to their portfolios should give Palo Alto Networks a look. Based on its laser-like focus on firewalls, tremendous ability to grow its customer base, its strong Q1, and its growth projections for the year, its shares likely have more room to run.

Fortinet

Network and computer security major Fortinet offers everything from application controls to anti-malware and firewall services. Having such a broad menu means it can meet the needs of both small and large customers.

But while that wide view has helped the company grow, Fortinet recently started focusing much more of its attention on expanding its base of larger customers. In the third quarter, deals worth over $500,000 were up by 50%, and the number of deals worth more than $1 million grew by 78% year over year.

Smaller deals grew by double-digit percentages as well, but the bigger ones are an especially positive sign because larger customers are more likely to sign three-year (or longer) contracts with the company.

"Subscription services continued to drive our business with overall services revenue growing 26% year-over-year. As we continue to expand our subscription offerings, our large existing customer base provides the foundation for upsell, resulting in increased higher-margin services revenue," CFO Andrew Del Matto said on the latest earnings call.

Revenue jumped by 18% in third quarter and GAAP net income popped from $6.3 million in the year-ago quarter to $26.6 million. 

Fortinet is expecting full-year revenue of $1.486 billion at the midpoint, which would represent a 16% increase, and diluted non-GAAP earnings per share of $1.01, which would be a 38% jump.

Finally, management is optimistic about the company's long-term prospects.  CEO Ken Xie said in a press release in October that the expanding cloud security market, as well as infrastructure and Internet of Things tech "will enable Fortinet to continue to grow at multiples of the market over the coming years." 

Cyberark Software

Israel-based Cyberark is one of the leading specialists in protecting privileged accounts -- the type usually owned by IT professionals who have access to the most important data within a company. If a hacker is able to breach a company's primary firewall, then it's up to Cyberark's software to ensure the privileged accounts are protected so that sensitive data can't be accessed.

Its early start in privileged account security has helped it outpace its competitors in this market, and the company is still growing at a healthy clip. In the third quarter, Cyberark's sales rose by 18% year over year to $64.8 million and part of that revenue increase came from an uptick in larger deals. Management said that Cyberark had its largest number of seven-figure business customers ever in Q3.

Cyberark's ability to grab new customers -- including 22 departments and agencies across all three branches of the federal government -- has helped boost its top line, and it has been reinvesting that money back into growing its business.

That sometimes means that Cyberark goes into the red when it spends heavily on research and development. But management foresees those investments turning into profits soon, and says that full-year non-GAAP operating income will reach $49.3 million at the midpoint, or about $1.04 per share. 

As CEO Udi Mokady said in a recent press release, "We are making early progress executing our strategy to globalize the sales organization, which we believe will position us to capitalize on the long-term opportunity for Privileged Account Security." 

Cyberark's leadership position, ability to bring in new customers, and its ongoing investments in its services should help the company continue leading in the privileged accounts security space in the coming years.

Remember this

Just as with most other investments, shares of these companies are liable to produce some major ups and downs. For example, CyberArk stock is down 4% over the past year. But investors should remember to take the long view, and understand that these companies are likely to be protecting sensitive data and information for thousands of companies for years to come.

Cybersecurity threats are only going to increase as more people and more devices come online, and each of these companies is poised to benefit from society's increasing data security needs.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends CyberArk Software, Fortinet, and Palo Alto Networks. The Motley Fool has a disclosure policy.