Few things beat buying a stock in an industry that is growing rapidly. Even a so-so company can prosper when the tailwinds of sector expansion are behind it. But the opportunities are much greater when you can spot a great stock in a fast-growing area.
Right now, cybersecurity is a booming industry. Research shows that the total cybersecurity market is expected to reach over $360 billion within the next 7 years, representing double-digit growth annually until then.
With such a large runway of opportunity ahead, two leading cybersecurity are set to clean up. What are they? Let’s start with Fortinet.
Fortinet: 10 Years Of Eye-Popping Growth
When the media spotlights cybersecurity stocks, names like Palo Alto Networks, Okta and SentinelOne grab the headlines. But Fortinet has an impressive set of financials that deserve scrutiny. Here’s what the company’s revenue growth has looked like over the past ten years:
- 2012: 23.1%
- 2013: 15.3%
- 2014: 25.2%
- 2015: 31.0%
- 2016: 26.4%
- 2017: 17.2%
- 2018: 20.7%
- 2019: 19.9%
- 2020: 19.9%
- 2021: 28.8%
And the trend has continued into early 2022 when the company reported a top line rise of 34% year over year.
Better yet, when we examined the company’s financials, we didn’t find a single quarter over the past 10 years when the year-over-year quarterly growth wasn’t positive.
What that tells you is that, adjusting for seasonality, Fortinet has grown every single year, every single quarter for a decade.
Not only that but Fortinet is now winning even larger deals and forecasting revenue growth of 31% for the full year and 27% for the next quarter.
So how does it look on valuation?
The consensus among analysts has fair value pegged at $71.58 per share suggesting close to 17% upside from current trading levels.
When we crunched the numbers we were a little more pessimistic and calculated intrinsic value at $62.34, which would result in more modest upside from the current share price. But for a company that has such a stellar track record of growth and historically trades at a premium to fair value, this might be as good as it gets.
Better to snap up a great company at a fair price than a fair company at a great price as the Oracle of Omaha likes to say.
17,945 Reasons To Like Crowdstrike
Crowdstrike has posted impressive numbers but perhaps none more so than its customer count, which came in at 17,945 during its last earnings announcement. That staggering figure represents an annual gain of 57%.
For the year, revenues grew by 61% to just under half a billion dollars. Like Fortinet, the revenue growth has been astonishing for as many fiscal years as we can go back:
- FY 2018: 125.1%
- FY 2019: 110.4%
- FY 2020: 92.7%
- FY 2021: 81.6%
- FY 2022: 66.0%
The financial statements aren’t all a bed of roses for Crowdstrike: operating income has been consistently negative:
- FY 2018: -$132 million
- FY 2019: -$138.3 million
- FY 2020: -$139.3 million
- FY 2021: -$86.3 million
- FY 2022: -$134.8 million
A classic case of revenue growth at the expense of profitability is what you could conclude from a quick glance. But when you turn your attention to the forecasts you can see the compelling case for Crowdstrike as operating income is forecast to turn positive in FY 2023 and beyond, growing at a rapid pace.
- FY 2023: +$317 million
- FY 2024: +$468.9 million
- FY 2025: +$697.4 million
- FY 2026: +$1.25 billion
- FY 2027: +$1.64 billion
The analyst consensus for operating income in ten years is a whopping $4.1 billion on revenues of $13.5 billion, a staggering figure.
It’s no surprise why analysts are optimistic. The company is not only growing but retaining the customers it is acquiring, and still better customers are paying more year over year as evident by the company’s net revenue retention rate, which is north of 145%, best we can tell.
On a valuation basis, Crowdstrike trades at a premium to fair value based on a discounted cash flow forecast analysis, which sits at $146 per share but sits at a discount to analysts’ consensus estimate, which is $232.57 per share. If they are right, Crowdstrike has almost 25% upside from here.