While cyber was a priority area of spending, several factors have heightened the urgency. First, the risks from state-sponsored actors from nations like China and Russia have escalated. Notably, the warning by FBI Director Christopher Wray that Chinese hackers were preparing to attack critical infrastructure was ominous.
Secondly, with the surge in ransomware attacks in 2023, organizations are now attentive. Executives saw the harm breaches like the Las Vegas casino hacks and Clorox (NYSE:CLX) attack caused on operations. In such a dangerous environment, taking preventative measures is a no-brainer, considering the dire consequences.
Furthermore, due to Securities Exchange Commission disclosure guidelines, Chief Information Security Officers must prepare robust defenses. The latest news about a breach on United Health (NYSE:UNH) highlights the vulnerabilities companies are facing. Cybersecurity stocks will continue to see surging demand for their tools.
CyberArk Software (CYBR)
CyberArk Software (NASDAQ:CYBR) is a global leader in identity security solutions. Its software-as-a-service platform offers identity protection paired with the right level of controls. CyberArk is among the cybersecurity stocks firing on all cylinders and delivered superb results on Feb. 8.
In the fourth quarter of fiscal year 2023, the company saw annual recurring revenues (ARR) surge 36% year-over-year (YOY) from $570 million to $774 million. Subscription annual recurring revenues grew from $364 million to $582 million, a 60% YOY growth. Due to the outsized growth, subscriptions now account for 75% of total ARR.
The quarter was a record for net new subscription ARR, adding $78 million. For the full year, the cybersecurity player added $204 million in net new ARR. In terms of customers, the firm ended the year with an impressive customer base. As of December 2023, 55% of Fortune 500 companies were customers.
In terms of growth, management sees a $50 billion total addressable market. Thus, they are maintaining an optimistic outlook for 2024, expecting 22% to 24% revenue growth in 2024. Additionally, they expect ARR in the range of $968 to $983 million, representing 25% to 27% growth.
CYBR stock is a buy today, given the healthy demand for identity security. It’s a free cash flow positive growth stock that will ride industry tailwinds higher.
CrowdStrike (CRWD)
Under the stewardship of CEO George Kurtz, CrowdStrike (NASDAQ:CRWD) has been a trailblazer. It has achieved one of the best growth rates in the industry, recording a 68% compounded annual revenue growth rate over the last five years.
Today, this cloud-native cloud security provider is a security giant with ARR hitting $3.15 billion in the third quarter of fiscal year 2024. Yet, despite its size, the company continues to deliver start-up-like growth numbers. For instance, in the latest quarter reported on Nov. 28, 2023, total revenue increased by 35%.
What’s more impressive about Crowdstrike’s growth is that it has maintained a higher level of profitability among cybersecurity stocks. Non-GAAP gross margins in Q3 were 78%, improving from 75% in the prior year’s quarter. Additionally, the company generated free cash flow of $239 million.
Several research firms have recognized Crowdstrike’s platform, Falcon, for its robust security offerings. MITRE has awarded the product a 100% perfect coverage score across visibility, protection and analytic detections. It was also recognized last year as a leader in endpoint security by Forrester Wave.
In terms of growth, the company is growing through new customers and expanding current relationships. Module adoption rates were 63% and 42% for five or more and six or more, respectively. The firm is also releasing new products like the Raptor release for the next generation Falcon platform.
Given the massive runway from customer additions, CrowdStrike has a decade of growth ahead. Organizations are moving from fragmented multi-agent tools, and CrowdStrike’s cloud-native single-platform architecture is the right choice.
Okta (OKTA)
Okta (NASDAQ:OKTA) stock has had a series of fits and starts in the past year due to execution issues. First, the firm has suffered several breaches that have dented confidence. Secondly, there have been lingering concerns about customer growth due to these breaches.
However, after an impressive Q4 FY2024 report where subscription revenue rose 20% YOY, it’s time to have a second look. Results were outstanding across the board. Current remaining performance obligations increased 16% YOY and the firm generated free cash flow of $166 million.
Indeed, customers are turning to Okta to power their identity infrastructure and manage their identity use cases. Particularly, revenue benefited due to a shift upmarket to large enterprise customers.
Given the impressive results, Bank of America analyst Madeline Brooks is stepping off the sidelines with an upgrade to “buy” and a $135 price target. She argues that growth concerns are abating. Moreover, she sees management’s FY2025 revenue guidance of $2.495 billion to $2.505 billion, representing 10% to 11% growth, as too conservative.
Even better, they see the deal pipeline heading into FY2025 as very robust. Furthermore, with Okta landing larger enterprise clients, they expect an upside to revenue estimates. At a forward EV/Sales multiple of 5.5, Okta is relatively cheap compared to other fast-growing cybersecurity stocks. Fundamentals are improving and OKTA stock could soar.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.