Introduction
Research forecasts that corporate spending on cybersecurity should grow at a CAGR of 13.8% between now and 2030 (source) and, as such, it suggests that many cybersecurity software and hardware companies should be excellent long-term buys. MunAiMarkets tracks 5 pure-play cyber security software companies in a model Portfolio named the MunAiMarkets Pure-Play CyberSecurity Software Stocks Portfolio and this article highlights their stock performances in October.
What Are Cyber Security Software Companies?
Cyber security companies train their models with data from previous attacks to create autonomous systems that can detect if an attack is ongoing based on certain readings. As a result that increases companies’ lead time for an attack and allows them to prepare mitigation and response strategies. Video: How AI is changing the cybersecurity landscape
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Some Background
Cyber crime damage is reported (see here) to reach $10.3 trillion by next year making the need for sophisticated cyber security crucial to protect networks, systems and other digital infrastructure from malicious cyber attacks (see here). On the other hand, however, it is estimated that cyber security spending was only $188B in 2023.
eSecutityPlanet.com provides a list of cyber security companies (see here) of which the 5 largest of those companies (i.e. +$20B in market capitalization) are highlighted in the MunAiMarkets Pure-Play CyberSecurity Software Stocks Portfolio.
What Is the PEG Ratio?
Given that growth is a key component of a stock’s expected return, the PEG ratio provides a simple way for investors to see how cheap a stock is relative to its growth rate and to compare a stock to its competitors.
The PEG ratio (price/earnings-to-growth ratio) builds upon the price-to-earnings (P/E) ratio by factoring in expected earnings growth. It takes into account not just the current earnings but also the company’s growth prospects. It is a quick calculation used to determine if a stock is trading at, above, or below fair value.
- A PEG ratio below 1.0 suggests that the stock price is undervalued relative to its expected future earnings growth. In other words, the market may not fully account for the company’s growth potential.
- Conversely, PEG ratios above 1.0 indicate that the stock price might be overvalued, as it isn’t necessarily supported by growth forecasts.
- Look for stocks with a PEG ratio below the industry median.
- The PEG ratio should be used along with the balance sheet, debt burden, and cash flow, or other valuation metrics that use the income statement. It’s also important to understand things like a company’s competitive advantage, its addressable market, and its long-term growth prospects.
- It’s a convenient rule of thumb but remember that the PEG ratio can vary based on earnings growth forecasts and the time frame being considered.
The MunAiMarkets Pure-Play CyberSecurity Software Stocks Portfolio
Below are how the 5 constituents in the Portfolio performed in October, in descending order, along with their market capitalizations and price/earnings ratios.
- CrowdStrike Holdings (CRWD): DOWN 1.2% in October
- Market Capitalization: $74.3B
- Price/Earnings Ratio: 82.8
- Price/Earnings-to-Earnings Growth (PEG) Ratio: 2.51
- Fortinet (FTNT): DOWN 2.1% in October
- Market Capitalization: $60.3B
- Price/Earnings Ratio: 37.6
- Price/Earnings-to-Earnings Growth (PEG) Ratio: 2.64
- Zscaler (ZS): DOWN 2.3% in October
- Market Capitalization: $27.8B
- Price/Earnings Ratio: 63.4
- Price/Earnings-to-Earnings Growth (PEG) Ratio: 2.67
- Palo Alto Networks (PANW): DOWN 7.3% in October
- Market Capitalization: $118.7B
- Price/Earnings Ratio: 57.8
- Price/Earnings-to-Earnings Growth (PEG) Ratio: 2.87
- Check Point Software Technologies (CHKP): DOWN 16.4% in October
- Market Capitalization: $18.8B
- Price/Earnings Ratio: 17.6
- Price/Earnings-to-Earnings Growth (PEG) Ratio: 3.25
Summary
On average, the above 5 pure-play cybersecurity software stocks, with an average market capitalization of $60B, went DOWN 2.4% in October.
Conclusion
Research forecasting that corporate spending on cybersecurity should grow at a CAGR of 13.8% between now and 2030 (source) suggests that many cybersecurity software and hardware companies should be excellent long-term buys.
