Cybersecurity continues to be one of the hottest sectors.
It represents an increasing need in the emerging age of AI that grows at a nearly exponential rate. The threats are becoming more sophisticated. Therefore, cybersecurity is no longer a nice-to-have, particularly for organizations managing a remote/hybrid workforce. This is particularly evident in the rapidly increasing zero trust space.
Unlike many sectors, it’s difficult to find cybersecurity stocks that are undervalued by traditional metrics. There’s been a strong flow of money into cybersecurity stocks in the last year. And the sector itself has a median price-to-earnings (P/E) ratio of approximately 32x which is at a premium to the S&P 500.
Plus, many of these companies are not yet profitable. So, consider three of the most undervalued cybersecurity stocks to buy in April 2024.
ZScaler (ZS)
San Jose, California-based Zscaler (NYSE:ZS) is a Zero-Trust platform well-suited to defend against the growing threats emerging from generative AI. Unlike “traditional” phishing scams of just 18 months ago, generative AI is creating increasingly realistic content that can fool even alert employees.
But Zscaler’s platform includes identity security which treats every online login attempt as a hostile threat (i.e. zero trust) and analyzes the user’s credentials including their location and the device being used. And its Zero Trust Exchange only connects employees with the applications they need for their jobs, which prevents a threat that slips through from accessing the broader network.
Until recently, Zscaler wouldn’t have made a list of the most undervalued cybersecurity stocks to buy in April. Like many stocks in the sector, ZS stock is up 64% for the year. However, a 20% pullback in the last month may make this stock more attractive.
The reason for the pullback was the company’s earnings which is a little surprising because the results weren’t bad at all. The company had a double beat and raised its guidance. Revenue for the first two quarters of fiscal year 2024 is up 37% year-over-year. And the company raised its full-year revenue guidance above analysts’ estimates.
Okta (OKTA)
One way to protect against the emerging threat from AI is by using AI-driven solutions. That’s the general bullish premise for Okta (NASDAQ:OKTA). In October 2023, Okta introduced its Okta Worforce Identity Cloud which is built with and powered by Okta AI. The program goes beyond a user’s initial login “to continuously assess user risk throughout active sessions,” and to automatically respond to identity threats across the company’s network.
OKTA stock was a laggard among cybersecurity stocks. It’s only climbed about 20% in the last 12 months. And the stock is down 2.5% in the last month despite a solid earnings report in which the company beat estimates on the top and bottom lines.
However, since the company’s earnings report, at least a dozen analysts have either reiterated or increased their ratings and/or price targets for OKTA stock. So, while investors may want to wait for a slightly better entry point, an attractive setup is emerging.
Tenable Holdings (TENB)
Tenable Holdings (NYSE:TENB) has a growing customer base of 44,000 customers that comprises 65% of the Fortune 500. That’s an indication of how big the pie is for the companies in this space.
This mid-cap stock is following a similar pattern to the other two stocks on this list. The company is showing strong growth in year-over-year (YOY) revenue and earnings. Since the company last reported earnings, six analysts have upgraded their rating or boosted their price target for TENB stock.
The most relevant of those ratings may have come from Needham & Company on March 19, 2024. The company reiterated its buy rating on the stock along with its price target of $62. That came on the same day that Tenable announced the expansion of its Tenable Cloud Security cloud-native application protection platform (CNAPP) to support Kubernetes on-premises and public cloud environments.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.