As my readers know, I have been bullish on cyber security stocks for quite some time now. I have been recommending accumulating shares of several companies in the sector ever since the market started selling off at the start of the year. Now that the market has recovered, all of the cyber security stocks are a lot higher than their 52-week lows.
The rally has been perfect for cyber security investors; however, since I prefer long-term investing, I think investors should continue holding these stocks. Betting on Palo Alto Networks (PANW, Financial), which is the market leader, is a no-brainer at this time and investors can still buy the stock despite the recent uptick.
Nowadays, cybersecurity threats are increasing rapidly. Hackers are making their way into large companies and breaking huge security systems. According to a recent report from Bernstein, the outdated system of point-based protection is not enough to overcome updated cyber threats, and substructure security needs are moving in the direction of integrated solutions using cloud-based services, next generation firewalls and endpoint safety.
Of all the companies in the cyber security sector, Palo Alto Networks is the strongest firm mainly driven by its WildFire. According to Palo Alto Networks, its innovative tactic and extremely distinguished cyber threat prevention facilities are far greater to legacy or point products. If both Palo Alto Networks and Bernstein are correct, this could lead the company to years of outperformance.
The company currently owns about 7% market share of the installed base in Internet security.Â
Bernstein also believes that the company has real possibility that it can double the top line in the next three years and substantially move toward profitability.
Reasons to believe in Palo Alto Networks
Recently, D.A. Davidson forecaster Jack Andrews called Palo Alto Networks a superior quality company that is displaying amazing growth signs despite its huge size in the security software arena.
Andrews also said the risk of bundled packages like Cisco's (CSCO, Financial) was inflated, subsequently security has been bought in a fragmentary manner, as enterprises would select what they assumed to be the finest product in every category. The U.S. government's usage of both Palo Alto's firewall as well as Cisco's network services aids that notion.
Apart from this, Andrews said Palo Alto's stock is not costly compared to its free cash flow, which increased more than 80% year over year.
Conclusion
Palo Alto Networks is thriving on Wildfire; however, with hackers developing new threats regularly, the company will soon have a host of product offerings to deliver to their clients. Given the growing size of the market, I think Palo Alto Networks is a definite buy.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
