Top Cybersecurity Stocks

Cybersecurity companies provide services to protect electronic information from theft or damage. Businesses in the cybersecurity industry utilize both software and hardware to ensure that computing devices and data are not misused. The industry serves a broad array of customers including individuals, businesses, and government, among others. Some of the leading names in cybersecurity include Check Point Software Technologies Ltd. and NortonLifeLock Inc.

Cybersecurity stocks, represented by the First Trust Nasdaq Cybersecurity ETF (CIBR), have underperformed the broader market over the past year. CIBR has provided a total return of -17.7% over the past 12 months, below the Russell 1000's total return of -12.5%. These market performance figures and all statistics in the tables below are as of Sept. 19, 2022.

Here are the top three cybersecurity stocks with the best value, the fastest growth, and the most momentum. Note that the companies on our list are primarily pure-play cybersecurity companies, while CIBR includes a wider variety of related stocks in its portfolio.

Best Value Cybersecurity Stocks

These are the cybersecurity stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

^{Source: YCharts}

• A10 Networks Inc.: A10 Networks is a provider of secure applications and solutions for multi-cloud networks, including private and public clouds as well as on-premise environments. Its software and hardware solutions enable its customers to secure their applications, users, and infrastructure from Internet, web, and network threats. A10 Networks reported earnings results for Q2 2022 on Aug. 2. Net income climbed by 57.4% year-over-year (YOY) on solid revenue growth, driven by a substantial increase in Americas revenue.
• NortonLifeLock Inc.: NortonLifeLock is a consumer cybersecurity company. It provides protective services and products for devices, online privacy, identity, home networks, and more. On Sept. 12, the company completed its acquisition of Avast, the digital security and privacy company. The aggregate consideration for the deal was over 94 million new NortonLifeLock Shares and roughly $6.0 billion in cash.
• CACI International Inc.: CACI International is a holding company that, through subsidiaries, offers national security mission services. The company provides government support in both domestic and international matters and in surveillance, intelligence, communications, reconnaissance, and other areas.

Fastest Growing Cybersecurity Stocks

These are the top cybersecurity stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.

^{Source: YCharts}

• A10 Networks Inc.: See company description above.
• Fortinet Inc.: Fortinet is a cybersecurity and network services company. It serves enterprises, communication service providers, small businesses, and government organizations. The company reported Q2 2022 earnings on Aug. 3. Net income attributable to the company climbed 26.2% on rising revenue YOY. The company saw strong growth in both product and service revenue over the period.
• Booz Allen Hamilton Holding Corp.: Booz Allen Hamilton is a holding company that provides management and technology consulting services through subsidiaries. It serves the U.S. government in the areas of defense, intelligence, and civil markets. Booz Allen Hamilton's Q1 FY 2023 ended June 30, and the company reported results for that period on July 29. Net income climbed by 49.9% as revenue grew by a smaller margin YOY. The company said it saw strong revenue growth and margins across all markets.

Cybersecurity Stocks With the Most Momentum

These are the cybersecurity stocks that had the highest total return over the past 12 months.

^{Source: YCharts}

• Qualys Inc.: Qualys is a compliance management and information technology security company. Its products are used to manage vulnerability, scan web applications, detect malware, and provide other services to customers in the U.S.
• Booz Allen Hamilton Holding Corp.: See company description above.
• Science Applications International Corp.: Science Applications International is a science and technology consulting company. It offers security and other consulting services and serves the energy, environmental, infrastructure, and health markets. On Sept. 7, the company announced that it had been awarded a $200 million task order by the U.S. Department of Defense. Under the contract, SAIC will provide training and recommend readiness procedures to improve intelligence and security to specific DOD operations.

Advantages of Cybersecurity Stocks

There has been rising interest in cybersecurity after the pandemic because companies looked to secure their increasingly distributed operations with more employees working from home. And multiple high-profile cyberattacks in recent months have also made organizations prioritize security spending. This could bode well for companies that provide software, hardware, and services that help secure computer systems and networks. This threat may also make companies and governments more serious about protecting their networks and digital infrastructure, translating into higher demand for cybersecurity companies as time goes on.

With Russia launching large-scale cyber-attacks in Ukraine in early 2022 as part of its invasion of that country, governments worldwide have issued warnings over potential hacking, boosting interest in cybersecurity stocks. Gauging from the performance of some companies' earnings results in the past couple of years, investors can expect strong numbers from some cybersecurity firms.

Risks of Cybersecurity Stocks

Many of the stocks in this sector have high P/E ratios, and prices can be volatile and very sensitive to quarterly growth. Moreover, with inflation in the U.S. soaring, there is a possibility of continued rate increases by the Federal Reserve, which also could hurt these stocks in the near term.

Although cybersecurity firms are expected to benefit from the urgent demand to boost cyber defenses from foreign threats and to accommodate operating in a more remote work environment, growth in the corporate security market may heighten competition in the sector.

Trends in Cybersecurity Stocks

According to technological research and consulting firm Gartner, the following are some of the top trends that will affect stocks of cybersecurity firms in 2022:

Expanded Attack Surface 

Currently, 60% of knowledge workers are remote, and at least 18% will not return to the office, Gartner research said. These changes in the way we work—together with greater use of public cloud, highly connected supply chains, and cyber-physical systems—have exposed new and challenging attack "surfaces." In other words, organizations have become more vulnerable to attack. Corporate security managers are urged to look beyond traditional approaches to security monitoring, detection, and response to manage these wider risks.

Increased Identity System Defense 

Identity verification systems are coming under sustained attack through misuse of credentials, now a primary method that attackers use to access systems and achieve their goals. Gartner describes the collection of tools and processes needed to defend identity systems as "identity threat detection and response" (ITDR). In the longer term, more consolidated solutions for this risk may emerge.

Digital Supply-Chain Risk 

Gartner predicts that, by 2025, 45% of organizations worldwide will have experienced attacks on their software supply chains, a threefold increase from 2021. Executives in charge of this area will have to partner with other departments to prioritize this risk and put pressure on suppliers to demonstrate security best practices.

Vendor Consolidation 

Security products are converging, and their vendors are consolidating security functions into single platforms while introducing pricing and licensing options to make the packaged defenses more attractive.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.