Cybersecurity Stocks Are Outperforming, But There Are Risks – Trefis
Our theme of Cyber Security Stocks has outperformed considerably, rising by about 51% year to date, compared to the S&P 500 which remains up by about 26% over the same period. There has been rising interest in cybersecurity following the Covid-19 pandemic, as companies looked to secure their increasingly distributed operations with more employees working from home. Moreover, multiple high-profile cyber attacks in recent months have also made companies prioritize their security spending. For perspective, the companies in our theme grew revenue at a compounded annual rate of around 34% over the last three years, compared to the S&P 500 companies, which grew revenue at under 5% each year over the same period.
That said, there are some risks. Most of the stocks in our theme are high-multiple names, and prices can be volatile and highly sensitive to quarterly growth rates. Moreover, with inflation in the U.S. soaring to multi-year highs, there is a real possibility that we could see sooner than expected rate hikes by the Federal Reserve, and this could also hurt these stocks in the near term.
Within our theme, Fortinet (NASDAQ:FTNT), a company that provides cybersecurity-related hardware such as firewalls and software, has been the strongest performer, rising by about 124% year-to-date on account of stronger than expected quarterly results and its ongoing pivot to the cloud. The stock is also up by over 3x from pre-Covid levels. On the other side, the stock price for Okta (NASDAQ:OKTA), an identity, and access management company, has declined by about 12% year-to-date.
[8/6/2021] Why Cyber Security Stocks Have Rallied Over The Last Month
Our theme of Cyber Security Stocks has gained a solid 6% over the last month and remains up by about 22% year-to-date. In comparison, the broader Nasdaq-100 has returned about 18% over the same period. The recent outperformance comes on the back of a renewed interest in the cybersecurity space following several high-profile cyberattacks, including the recent attack on software company Kaseya and the ransomware attack on the Colonial Pipeline in May. This could make companies and governments more serious about protecting their networks and digital infrastructure, translating into higher demand for the companies in our theme in the years to come. Moreover, going by the performance of the few companies that have already reported results, investors are expecting strong numbers from cybersecurity players this earnings season.
Within our theme, Fortinet (FTNT), a company that provides cybersecurity-related hardware such as firewalls and software, has been the strongest performer, rising by about 102% year-to-date on account of stronger than expected quarterly results and its ongoing pivot to the cloud. On the other side, the stock …….