Which cybersecurity action is the smartest buy for 2022?


Cyber ​​security has never been more important than in today’s digital environment. Businesses need to protect every point on the network to prevent breaches. If protective measures fail, the results can be disastrous, as demonstrated in the attack on the colonial pipeline earlier this year.

Because of this necessity, cybersecurity stocks make fantastic investments. Businesses rarely shy away from cybersecurity companies because of the huge financial and time burdens that change brings. Three companies investors should consider buying are Crowd strike (NASDAQ: CRWD), Okta (NASDAQ: OKTA), and Zscaler (NASDAQ: ZS). While all are good companies, what’s the best stock to buy?

Image source: Getty Images.

What does each business do?

Every business approaches cybersecurity differently. Although some business segments may compete with each other, all three tout their ability to integrate their flagship products to form an ultra-secure solution.

Crowdstrike secures endpoints, such as laptops or mobile devices, to keep the business safe. Crowdstrike’s edge is its security cloud which maps and analyzes attacks on various endpoints on its customers’ networks. If an attack occurs at a certain business, Crowdstrike’s artificial intelligence determines what happened and ensures that customers around the world are protected from a similar exploit.

Okta focuses on managing identities so that only those who should be on the network can access them. This allows employees to work remotely, as companies can ensure their network is not compromised. Okta also offers a customer identity solution that prevents account takeover and builds customer trust with additional security features. With 81% of breaches caused by stolen or weak passwords, Okta’s multi-factor authentication process can prevent these attacks and save businesses and their customers time and money.

Today’s business environment involves many devices, such as a mobile device, sensors, or test equipment, connected to the same server that powers applications with information. If a malicious event were to occur on one of these devices, it could affect others. Zscaler prevents this by implementing a zero-trust network that does not trust anyone and only allows users to access certain applications based on several factors. Zscaler is also helping businesses transition from legacy network technology to cloud connectivity.

Commercial execution and valuation of actions

All three companies are still run by their founders, a characteristic that many investors value when looking for investments. These Founder-CEOs usually have their heart and soul invested in the business and will push the boundaries of innovation to see their creation succeed. Many successful companies like You’re here (NASDAQ: TSLA) and Nvidia (NASDAQ: NVDA) are run by founders, and Jay Chaudhry (Zscaler), Todd McKinnon (Okta) and George Kurtz (Crowdstrike) aim to replicate the success that Elon Musk (Tesla) and Jensen Huang (NVIDIA) have enjoyed with their businesses.

It’s hard to find fault with any of their quarterly earnings reports when viewed from a growth lens. In each of their most recent quarters, all have posted spectacular results.

Society Income (TTM) Revenue growth (year-on-year) Free cash flow (FCF) FCF margin
Crowd strike $ 1.29 63.8% $ 123 32%
Okta $ 1.15 61.2% $ 33 ten%
Zscaler $ 0.76 61.5% 83 $ 36%

Data source: Macrotrends, Crowdstrike, Okta and Zscaler. Revenue for the last twelve months in billions. Free cash flow in millions.

Some bears may point out that none posted operating income in accordance with generally accepted accounting principles (GAAP). While this is concerning, long-term investors should be excited, as companies capture as much market as possible by investing in innovation and sales teams.

When ratings are reviewed, each business is rated differently but strongly.

OKTA PS Ratio Graph

OKTA PS ratio given by YCharts

Each saw their valuation rise after investors realized the business demand the pandemic has generated for the trio. Zscaler has the highest valuation and has not returned to normal levels, unlike Crowdstrike and Okta. Both are reaching normal levels set before the pandemic. None are cheap, but they are highly valued by the market due to strong execution and future market opportunities.

Evaluating gross margin can give investors insight into a company’s revenue when production costs are subtracted.

OKTA graph Gross profit margin (quarterly)

CRWD gross profit margin (quarterly) given by YCharts

Even though Zscaler’s gross margin is the best, it has fallen from its previous highs. Okta is the lowest of the trio; it has fallen below the 70% mark in the last two quarters. When gross margins decline, it can be a sign that the company is losing its pricing power. The flip side is also true with Crowdstrike, as its gross margin increases, demonstrating its pricing power.

What is the best buy?

Investors can nitpick Crowdstrike, Zscaler, and Okta whatever they want to find loopholes in the investment thesis. Ultimately, all three are great potential investments and could make for a strong basket of cybersecurity stocks. If I picked a winner, it would be Crowdstrike. It is not at the peak of its valuation, the gross margin is increasing and it is the revenue that is growing the fastest while producing a strong free cash flow. Zscaler and Okta are still great companies, but they fall short of Crowdstrike.

Businesses need to have good cybersecurity. No one wants to be the main topic of the news for a data breach. Crowdstrike, Zscaler and Okta operate in this space and are making fantastic investments. Heading into 2022, growth investors should consider buying one of these great stocks.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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