Following the announcement of its result late last week, shares of Cyberark Software Ltd (CYBR, Financial) rose by almost 10%. That is still about 5% less than the all-time high for the stock that began trading less than nine months ago. Operating in the cyber-security space along with other players like Fortinet Inc. (FTNT, Financial), FireEye Inc. (FEYE, Financial) and Palo Alto Networks Inc. (PANW, Financial), Cyberark is the newest player on the trading block. Its stock has already touched a high of almost 4.5x of the listing price in its short trading life and even now, trades not too far off that high mark. Is this stupendous growth just a flash in the pan or is this a sustainable long term story?
The cyber-security market
With growing reliance on technology, specifically networked technology, cyber-security has gained a lot of prominence for big and small companies alike. The bigger the company, bigger are their networks and therefore, proportionately bigger are the risks of security breaches at any of the many points in the systems. Hacking cases at big companies that have become famous recently include that of Target Corporation (TGT, Financial) and more recently, of Sony Entertainment Pictures (SNE, Financial). Such cases affect other big companies who want to have the best cyber-security systems in place to avoid being victimised themselves too.
According to a report last month from Symantec Corporation (SYMC, Financial) that speaks about cyber-attacks for 2014, such attacks on large companies have gone up 40% compared to 2013, and while a majority of attacks target the oil & gas and mining industries, every other industry seems to be fair game for these attackers. Being a fast-changing technological landscape, companies need to move fast and constantly update their systems to keep their businesses running without interruption or without having confidential data stolen. Attackers are constantly adapting to the defence systems and the complexity of attacks is increasing all the time.
Position of strength
Cyberark is focused entirely on cyber security alone, while many other players in this space also work on security products for standalone machines. The security solutions from the company tend to assume that it is not possible to entirely stop breaches of the system and hence work to identify threats that already exist within the system and try to prevent those from being exploited. This is done by trying to isolate unusual activity from authenticated users or by beefing up security at points of interaction with third-party vendors. This strategy has given the company a client base that includes 40 of the Fortune 100 companies and a fifth of the Global 2000 companies, among its 1,800 or so customers overall. For one company, that’s a very strong position to be in, especially since security systems are not changed every other day.
Strong financials
In the results of its latest quarter, the company beat analysts’ expectations solidly. Its revenue was up 89% year on year, and the management has guided for another 50% of year-on-year revenue growth for the current quarter. Following the results, a whole host of analysts have increased their target price for the stock, furthering their already bullish stance.
Conclusion
Cyberark operates in a market that is expected to grow at over 11% CAGR for another 5 years at least, and the company has a solid client base that is growing. Its performance has been stellar so far and there is no indication that the management is doing anything wrong. While the stock’s valuation is a bit high, we still recommend a BUY on this stock.
