Founded in 1999, Qualys Inc. (QLYS, Financial) is a leader in cloud security and compliance. The company went public in 2012 and, since then, the stock has been on a meteoric rise, gaining 878%.
The need for companies to comply with all the relevant rules, laws and regulations is becoming more important. If a business fails to meet the requirements, they can risk huge fines, lawsuits and public backlash. Thus, it’s no surprise the global compliance market is expected to expand at a 14% compound annual growth rate between 2022 and 2030, reaching a market size of $134 billion by the end of the period according to Grand View Research.
Qualys recently beat earnings expectations for the first quarter of 2022 and announced a $200 million share buyback program. Let’s dive into the business model, financials and valuation to see if this stock is a good potential opportunity.
Business model
A leader in its industry, the company offers a cloud-based platform which gives a “single view” across the global IT environment. Thus, rather than enterprises having to use multiple different vendors, they can consolidate their stack. This enables better IT security and compliance visibility.
Source: Qualys presentation.
Its services include global asset inventory, risk mitigation and threat detection and response.
The company serves 66% of Forbes Global 50, 46% of Global 500 and 25% of Global 2000. Its customers include well-known brands such as Visa (V, Financial), Wells Fargo (WFC, Financial), Ford (F, Financial), Netflix (NFLX, Financial), Accenture (ACN, Financial), McDonald's (MCD, Financial) and many more.
The company has recently seen strong interest and adoption of its Vulnerability Management, Detection and Response (VMDR) application, with customer penetration now at 40%.
Beats earnings expectations
The company reported earnings for the first quarter on May 4. Revenue of $113.4 million increased 17% from $96.8 million in the prior-year quarter. The gross profit of $89.4 million jumped 19% from $75.1 million a year ago.
Qualys operates with an extremely high SaaS gross margin of 79%, which was up 1 percentage point over the year. Earnings came in at 89 cents per share, beating analysts' estimates of 81 cents. In addition, the company has reported earnings growth over the past four consecutive quarters that was above expectations.
The company does operate with a loss of $33.5 million, which was up substantially from a $2.7 million loss reported in the year-ago quarter. This was primarily driven by an increase in stock-based compensation.
The company has a strong balance sheet with $267 million in cash and short-term investments and virtually no interest-bearing debt. Qualys is guiding for full-year 2022 revenue of $484 million to $486 million, up 18% year over year. Net income per diluted share is forecasted to be $1.91 to $1.95, up from the previous guidance range of $1.59 to $1.64.
In terms of valuation, the GF Value Line, which analyzes historic multiples, past financial performance and future earnings projections, suggests the stock is fairly valued at the current level.
The price-sales ratio is around 12.5, which is in line with the average level historically. However, it is above competitor Rapid7 Inc.'s (RPD, Financial) price-sales ratio of 8.05.
Final thoughts
Qualys is a true leader in the cloud security market and dominates the compliance industry. Its illustrious customer base of Forbes top 50 companies really do set the company apart from competitors. The increasing need for enterprises to stay regulated means Qualys has plenty of tailwinds ahead. The stock isn’t cheap, but it’s not expensive either.
