According to research firm McKinsey, the business community is poised to spend $213 billion on cybersecurity software by 2024. However, that’s not nearly enough to defend against what Cybersecurity Ventures believes will be the $9.5 trillion in damage caused by cybercrime throughout the year.
McKinsey believes that companies should instead collectively spend $2 trillion a year, leaving a gap of $1.8 trillion. That presents an opportunity for cybersecurity providers, as the enormous costs of cyber attacks will drive an increasing number of companies to invest more heavily in protection.
CrowdStrike (NASDAQ: CRWD) is the second largest cybersecurity provider in the world, with a market capitalization of $91 billion. However, sales are growing twice as fast as the current leader. Palo Alto Networksand could quickly take the top spot as the stock shot up 147% in the past year alone.
However, it will take more than one or two suppliers to fill the huge spending gap highlighted by McKinsey. Therefore, this is why investors might consider buying back shares SentinelOne (NYSE:S) And Shelf life (NASDAQ: TENB) also.
1. SentinelOne: A powerhouse in automated protection
SentinelOne believes that machines can respond to cyber incidents much faster than humans. That’s why the Singularity platform is built with artificial intelligence (AI)-based automation at its core. It is a complete cybersecurity solution that includes cloud networking, endpoints and identity protection, with a host of unique features designed to save human workers time.
For example, Singularity’s Storyline feature autonomously creates incident summaries, complete with context, so managers don’t have to spend hours manually investigating. The One-Click Remediation tool then allows managers to immediately roll back unauthorized changes to their organization’s network in the event of a successful breach. Finally, Purple AI is a chatbot-style assistant integrated into Singularity that can discover vulnerabilities and hunt for new threats on command.
During the recent first quarter of fiscal 2025 (ended April 30), SentinelOne generated $186 million in revenue, up 40% year over year. That meant it grew even faster than CrowdStrike, which delivered a 33% revenue increase over the same period, but CrowdStrike generated significantly more revenue ($921 million), making it harder to grow as quickly. Nevertheless, it’s a sign that SentinelOne may be taking some market share from its competitors.
SentinelOne also generated $33.7 million in free cash flow during the first quarter, which is a non-GAAP measure of profitability. The combination of solid sales growth and operating costs that increased by only 5.3% compared to the same period last year contributed to the result. SentinelOne never delivered positive free cash flow before the first quarter, so it was a significant milestone.
SentinelOne stock is down 77% from its all-time high hit during the tech frenzy of 2021. Its price-to-sales ratio (P/S) was over 100 at the time, which was unsustainable, but is now at a more reasonable 8.2 . In fact, that looks like a bargain compared to CrowdStrike’s P/S ratio of 28.1, especially considering SentinelOne’s revenue is growing faster.
2. Tenable: A leader in vulnerability management
Tenable is a specialist in the field of vulnerability management. The Nessus platform is the most widely deployed solution of its kind in the industry. It proactively scans devices, networks and operating systems looking for vulnerabilities so organizations can patch them before they are exploited by malicious actors.
However, Nessus has become more of a stepping stone into the broader Tenable ecosystem, which includes a growing number of mainstream cybersecurity products such as cloud security and identity management. The company launched Tenable One in 2022, a consolidated solution designed to meet all the cybersecurity needs of modern organizations.
Tenable One also includes a product called ExposureAI, which helps managers assess their risk exposure, explain potential threats, and even recommend actions to improve results. Tenable says it has the world’s largest repository of contextual exposure data, and since data is the lifeblood of AI models, ExposureAI is positioned to be one of the most effective tools of its kind.
Tenable generated revenue of $216 million in the first quarter of 2024 (ended March 31), which was an increase of 14% from the same period a year ago. It is growing relatively slowly as it cuts costs and focuses instead on profitability, building a more sustainable business for the long term. Operating expenses rose just 8% in the first quarter, resulting in a 42% reduction in GAAP net loss, which came to just $14.4 million.
On a non-GAAP basis, which excludes one-time and non-cash expenses such as stock-based compensation, Tenable’s net income rose 133% to $30.4 million, so the strategy is certainly paying off.
Sustainable shares are even cheaper than SentinelOne, with a price-to-earnings ratio of just 5.8. The company is growing its revenue at a slower pace than SentinelOne, but is very close to achieving true GAAP profitability, which likely makes it a good buy for value investors with a more conservative risk profile. If McKinsey’s predictions for the cybersecurity industry are correct, Tenable will play a key role in closing the spending gap.
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds and recommends positions in CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.
2 Super Cybersecurity Stocks (Other than CrowdStrike) to Buy Hand Over Fist Today was originally published by The Motley Fool
