Doris Ratliff :max_bytes(150000):strip_icc()/GettyImages-14377610461-72eb3b6ca3534943b41adcf859ae19da.jpg "Top Cybersecurity Stocks for Q2 2023")
Top cybersecurity stocks this quarter include VeriSign Inc., Booz Allen Hamilton Corp., and CACI International Inc., shares of which have all notched double-digit gains in the last 12 months, weathering a higher interest rate environment that has hurt tech companies and spurred widespread pullbacks in business spending.
Cybersecurity stocks, represented by the First Trust Nasdaq Cybersecurity ETF (CIBR), have underperformed the broader market over the past year. CIBR has fallen 19% over the past 12 months, while the Russell 1000’s has fallen 2%.
Here are the top three cybersecurity stocks with the best value, the fastest growth, and the most momentum. All data are as of May 1, 2023.
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.
| Best Value Cybersecurity Stocks | |||
|---|---|---|---|
| Price ($) | Market Capitalization (Market Cap) ($B) | 12-Month Trailing P/E Ratio | |
| Cisco Systems Inc (CSCO) |
47.34 | 19.4 | 17.3 |
| Check Point Software Technologies Ltd (CHKP) |
118.52 | 14.3 | 18 |
| Leidos Holdings Inc (LDOS) |
94.32 | 12.9 | 19 |
Source: YCharts
- Cisco Systems Inc.: Cisco Systems is one of the world’s leading information technology and networking companies, developing and selling networking hardware, software, and telecommunications equipment. Cisco has undertaken to grow its services and subscription business in recent quarters. In the final quarter of 2022, software revenue grew 10% and subscription sales increased 15%, bringing service and software’s share of total revenue to 44%.
- Check Point Software Technologies Ltd.: Check Point is a leading provider of cyber security solutions to corporate enterprises and governments globally. While Check Point announced slower sales cycles due to economic conditions in the first quarter of 2023, the company also launched its Infinity Global Services platform to provide a complete threat assessment
and response solution for its customers. - Leidos Holdings Inc.: Leidos is a defense technology and engineering company that mainly does business with U.S. government agencies like the Department of Defense. On May 3, Tom Bell began his tenure as CEO, one day after the company reported sluggish first-quarter revenue growth and a drop in earnings. Bell previously led Rolls-Royce’s North American operations, before which he was senior vice president of sales and marketing at Boeing’s defense division.
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 1,000% were excluded as outliers.
| Fastest Growing Cybersecurity Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Fortinet Inc (FTNT) | 62.81 | 49.2 | 68 | 33 |
| A10 Networks Inc (ATEN) | 14.34 | 1 | 85 | 10 |
| Alarm.com Holdings Inc (ALRM) | 47.39 | 2.3 | 89 | 7 |
Source: YCharts
- Fortinet Inc.: Founded in 2000, Fortinet is a global leader in cybersecurity and networking solutions for enterprises, governments, and small businesses. Driven by an industry-leading firewall platform, Fortinet increased revenues by 32% year-over-year in 2022.
- A10 Networks Inc.: Founded in 2004, A10 provides security solutions for on-premises, multi-cloud and edge-cloud environments. On April 3, A10 forecast first-quarter revenue would drop to somewhere in the range of $56 to $58 million from $63 million in the year-ago quarter.
- Alarm.com Holdings Inc.: Alarm.com offers an operating system that allows users to control their home or business alarm system through their mobile devices. Alarm.com expects revenue of $552 million and net income of $83 million in 2023, up from $520 million in revenue and $55 million in net income last year.
Cybersecurity Stocks With the Most Momentum
These are the cybersecurity stocks with the highest total return over the past 12 months.
| Cybersecurity Stocks With the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| VeriSign Inc (VRSN) | 219.4 | 22.8 | 23 |
| Booz Allen Hamilton Holding Corp (BAH) | 96.96 | 12.8 | 21 |
| CACI International Inc (CACI) | 316.22 | 7.2 | 19 |
| Russell 1000 Index | N/A | N/A | -6 |
| First Trust Nasdaq Cybersecurity ETF (CIBR) | N/A | N/A | -19 |
Source: YCharts
- VeriSign Inc.: Verisign is a global provider of domain registry services and internet infrastructure. Despite macroeconomic headwinds, Verisign reported revenue of $364 million in the first quarter of 2023—up 5.1% year-over-year—and cash and equivalents of over $1 billion.
- Booz Allen Hamilton Holding Corp.: Booz Allen Hamilton is a consulting firm specializing in analytics, digital solutions, engineering, and cyber applications. Driven by strong demand, Booz Allen Hamilton’s revenue grew 12% in the final quarter of 2022. The company raised the midpoint of its full-year guidance in the quarter’s earnings release.
- CACI International Inc. CACI provides a full suite of cyberspace, digital, engineering, and enterprise IT solutions for national security and defense applications. In the most recent quarter, CACI signed a five-year research and development agreement with the U.S. Army to further the development of advanced payload technologies and space sensor applications. Furthermore, the company increased revenue by 10% and net income by 24% over the same quarter a year ago.
Trends in the Cybersecurity Sector
According to the International Data Corporation, worldwide spending on security services is expected to grow 12% to $219 billion in 2023. The research firm estimates spending on security products and services will continue to outperform growth in overall IT spending, driven by cloud deployments and expanding privacy legislation. Banking, manufacturing, professional services, and government are the industries expected to increase spending the most. Software is expected to be the largest and fast-growing technology group in 2023, with endpoint security the leading software category.
With this in mind and geopolitical tensions remaining elevated, cybersecurity stocks—particularly software-focused names—could be positioned to weather the macroeconomic storm and deliver strong growth.
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. With inflation in the U.S. remaining elevated, there is a
possibility of more rate increases by the Federal Reserve, which also could hurt these stocks
in the near term.
