In this article, we will discuss the 15 best cybersecurity stocks to buy heading into 2023. If you want to skip our detailed analysis of the cybersecurity industry and explore similar stocks, you can go directly to 5 Best Cybersecurity Stocks to Buy Heading into 2023.
The cybersecurity industry is experiencing rapid growth due to the increasing number of cyber-attacks and data breaches. As hackers become increasingly sophisticated in their attacks and technology becomes more pervasive, the need for effective cybersecurity solutions has grown. Companies and organizations of all sizes, from small businesses to large corporations, are investing heavily in cybersecurity solutions to protect their data and networks. The cybersecurity industry is a vital part of the modern economy, and its growth is expected to continue in the coming years. As organizations become increasingly reliant on digital technologies, the need for robust cybersecurity solutions will only increase.
The Cybersecurity Industry: An Analysis
According to a report by Grand View Research, the global cybersecurity market was worth $184.93 billion in 2021. The industry is expected to reach a value of $202.72 billion in 2022 and grow at a compound annual growth rate of 12% from 2022 to 2030, reaching a value of $500.70 billion by the end of the forecasted period. This growth is expected to be driven by the increase in cyber-attacks as businesses go digital and a surge in the usage of smart devices across the globe. In 2021, the defense/government segment held the dominant market share and the healthcare segment held the dominant revenue share of the global cybersecurity market. Region-wise, North America held the dominant market share in 2021, and Europe was the runner-up region. The APAC region is expected to grow at the fastest pace over the forecasted period, registering a CAGR of 15%.
Big tech companies such as Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are pouring hefty investments into cybersecurity companies. According to a report by CB Insights, cybersecurity funding doubled year over year in 2021 and amounted to over $25 billion. In this piece, we will discuss some of the best cybersecurity stocks to buy now.
Photo by Obie Fernandez on Unsplash
Our Methodology
To determine the best cybersecurity stocks to buy now, we studied industry analysis reports and identified key players operating in the space. We studied these companies in detail and reviewed their product pipelines and business models. We then selected companies with robust product pipelines, strong fundamentals, and positive market sentiment. Along with each stock, we have included analyst ratings, the hedge fund sentiment, and salient features that make them viable investment options to consider. These stocks are ranked according to their popularity among elite money managers.
Best Cybersecurity Stocks to Buy Heading into 2023
15. Qualys, Inc. (NASDAQ:QLYS)
Number of Hedge Fund Holders: 25
Qualys, Inc. (NASDAQ:QLYS) is a leading provider of cloud-based security and compliance solutions. Qualys, Inc. (NASDAQ:QLYS) is a trusted security and compliance partner for some of the world’s largest enterprises, including Fortune 500 companies, government agencies, and national healthcare institutions among others. The company is profitable and cash-rich and is one of the best cybersecurity stocks to buy heading into 2023. According to the company’s balance sheet, Qualys, Inc. (NASDAQ:QLYS) has free cash flows of $177.8 million, a trailing twelve-month operating margin of 27.51%, and an ROE of 26.77%.
On November 3, Wedbush analyst Daniel Ives updated his price target on Qualys, Inc. (NASDAQ:QLYS) to $140 from $150 and reiterated an Outperform rating on the shares.
At the close of Q3 2022, 25 hedge funds were long Qualys, Inc. (NASDAQ:QLYS) and disclosed stakes worth $295.5 million. Of those, Fundsmith LLP was the most prominent investor in the company and disclosed a position worth $92.19 million.
Here is what Headwaters Capital had to say about Qualys, Inc. (NASDAQ:QLYS) in its second-quarter 2022 investor letter:
“Qualys, Inc. (NASDAQ:QLYS) was founded in 1999 and provides vulnerability management software to both SMBs and enterprise customers. Vulnerability management software provides a continuous view of security and compliance across all of a company’s assets including on-premise, end-points, cloud and mobile. The easiest way to think about QLYS’s original VM solution is that it provided a dashboard that monitored all potential threats to a network and helped IT departments prioritize which vulnerabilities were the highest risk. QLYS was a pioneer in the industry as they were one of the first companies to offer a cloud-based software as a service (SaaS) solution as opposed to the traditional license offerings that proliferated at the time. While QLYS’ VM software has always provided an industry leading dashboard to monitor weaknesses, it provided limited functionality to respond to these vulnerabilities. More recently, QLYS has increased the functionality of its software through the rollout of Detection and Response capabilities (VMDR) and extended detection and response (XDR) capabilities in late 2021.
The cybersecurity space has been marked by a preference of customers for point solution expertise as opposed to a winner take all solution. This market structure is driven by the complex nature of assets that need protection, the dynamic nature of security threats and the critical nature of cybersecurity, which leads to a customer preference for quality over cost. Historically, cybersecurity was best served by firewalls, which provided a ring fence around assets that were physically located on a network. Firewalls are increasingly becoming obsolete in the cybersecurity world as the network perimeter has effectively disappeared due to the growing adoption of SaaS solutions and new connected devices that connect to the network from multiple new endpoints. This trend has only accelerated following COVID. As more devices and software tools connect from outside of the traditional firewall perimeter, the importance of security monitoring tools such as VM, VMDR and XDR has increased. In many ways, vulnerability management is the foundation of cybersecurity as it provides the dashboard for monitoring all potential security gaps. QLYS’ software can provide critical data about which assets are exposed to specific threats and can increasingly help IT departments prioritize and remediate these vulnerabilities.
Understanding QLYS’s history is important to gaining confidence in QLYS’ ability to maintain revenue growth going forward. QLYS was almost perfectly positioned earlier this decade to take advantage of both the transition in the software market from license to SaaS solutions as well as the cybersecurity trend away from firewalls as devices increasingly moved beyond a physical perimeter. Given the large TAM, industry tailwinds and a market leading product, QLYS was able to growth revenues at a +20% CAGR from 2012-2018. Even more impressive, QLYS was able to accomplish this growth with limited investment in R&D or its sales force. R&D as a percentage of revenues declined from 22% in 2012 to 16% in 2018 while S&M declined from 40% in 2012 to 22% in 2018. Consequently, QLYS operates with one of the highest EBITDA margins in the industry at 45%. The ability for QLYS to post such consistent revenue growth despite under-investing in product development and sales is evidence of the strong competitive positioning of QLYS’ software and the critical nature of the product…” (Click here to read more)
Big tech companies that are heavily investing in cybersecurity include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT).
14. Tenable Holdings, Inc. (NASDAQ:TENB)
Number of Hedge Fund Holders: 27
Tenable Holdings, Inc. (NASDAQ:TENB) is a leading provider of security solutions that help organizations reduce their cyber risk. On October 25, the company posted market-beating earnings for the fiscal third quarter of 2022. The company reported earnings per share of $0.15 and outperformed consensus by $0.12. The company generated a revenue of $174.85 million, up 26.10% year over year, and beat Wall Street expectations by $4.65 million. Tenable Holdings, Inc. (NASDAQ:TENB) has free cash flows of $104.5 million and is placed on our list of the best cybersecurity stocks to buy now.
On October 26, DA Davidson analyst Rudy Kessinger revised his price target on Tenable Holdings, Inc. (NASDAQ:TENB) to $47 from $53 and maintained a Buy rating on the shares.
At the end of the third quarter of 2022, 27 hedge funds held stakes in Tenable Holdings, Inc. (NASDAQ:TENB). The total value of these stakes amounted to $444.8 million. As of September 30, Greenvale Capital is the most prominent shareholder in the company and holds a position worth $135.7 million.
13. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 30
SentinelOne, Inc. (NYSE:S) is a cutting-edge cybersecurity company that provides comprehensive endpoint protection for organizations of all sizes. The company’s platform offers a complete security suite that includes automated threat detection and response, endpoint protection, vulnerability management, cloud security, and advanced analytics. The stock is ranked among the best cybersecurity stocks to buy now and is worth $4.22 billion on the open market, as of December 2.
On November 22, Morgan Stanley analyst Hamza Fodderwala updated his price target on SentinelOne, Inc. (NYSE:S) to $30 from $40 and reiterated an Overweight rating on the shares. This November, BTIG analyst Gray Powell revised his price target on SentinelOne, Inc. (NYSE:S) to $25 from $38 and maintained a Buy rating on the shares.
At the end of Q3 2022,…
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