Stocks to buy

The trend of major companies undergoing impactful hacking attacks definitely isn’t going away. In just the last several weeks, a breach at Uber (NYSE:UBER) exposed the personal information of the company’s data, while a cyberattack of JPMorgan (NYSE:JPM) reportedly ” blocked the bank’s network infrastructure” and a hack of “more than a dozen U.S. airports’ websites” made it impossible to access areas of their sites for a while. Clearly, in such an environment, companies and governments are going to continue to spend a great deal of money on cybersecurity. As a result, under-the-radar cybersecurity stocks have the potential to surge 500% or more over the next five years.

There are two other reasons why under-the-radar cybersecurity stocks can delivery huge returns over the long term. First, the recent, successful attacks indicate that the current, standard technologies do not entirely prevent hacks. Accordingly, relatively new approaches to cybersecurity could potentially be widely-adopted by businesses, large and small.

And secondly, successful, under-the radar cybersecurity companies have good odds of being acquired. In 2022, for example, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) acquired Mandiant, while Thoma Bravel, a private equity firm, has bought two IT security firms —ForgeRock (NYSE:FORG) and Ping Identity Holding (NYSE:PING)– sending their under-the-radar cybersecurity stocks soaring.

S SentinelOne $22.75
TENB Tenable Holdings $29.99
RPD Rapid 7 $40.35
CYRN Cyren $1.23
SUMO Sumo Logic $6.78
ZS Zscaler $148.05
TLS Telos $7.85

SentinelOne (S)

Source: Tada Images / Shutterstock.com

SentinelOne (NYSE:S) uses artificial intelligence to autonomously enable “prevention, detection, response, and threat hunting.”

Among its prominent partners are Mandiant and consulting firm KPMG. SentinentOne has won awards and recognition from a number of independent third-party evaluators of IT security systems, including Gartner , SE Labs, and Mitre.

For its fiscal second quarter, the company’s revenue soared 124% year-over-year to $102.5 million, while its customer base jumped 60% year-over-year to more than 8,6000, and the number of its customers spending more than $100,000 on its offerings climbed 117% year-over-year to 755.

SentinelOne raised its full-year revenue guidance growth to 103% versus 98% previously.

“Our gross margin expanded by 10 percentage points year-over-year and reached a new high of 72%. Our operating margin improved 42 percentage points compared to just a year ago. [This] extraordinary performance reflects increasing scale and leverage in our business model,” SentinelOne CEO Tomer Weingarten reported on the company’s Q2 earnings conference call on Sept. 1.

Tenable Holdings (TENB)

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Tenable (NASDAQ:TENB) appears to offer a more human-driven approach than SentinelOne. Specifically, Tenable reports that its products deliver “context-driven analytics” that enable employees to preemptively prevent cyberattacks from occurring.

Tenable notes that it has more than 40,000 customers globally, including 60% of Fortune 500 firms and 40% of Global 2000 companies.

Based in Maryland, Tenable was founded in 2002.

In Q2, “The number of clients spending $100,000 or more on Tenable platforms jumped 27% year over year to 1,191,” InvestorPlace columnist Tezcan Gecgil reported last month.

Currently, Tenable’s market capitalization of $3.4 billion is relatively low compared to that of the IT security giants. For example, Fortinet’s (NASDAQ:FTNT) market capitalization is $38 billion. As a result, Tenable does indeed have room to soar 500% in the next five years.

Analysts, on average, expect Tenable’s earnings per share to climb to $1.05 this year versus the 80 cents of EPS that it reported for 2021. The mean estimate calls for the company’s 2023 EPS to climb to $1.31.

Rapid 7 (RPD)

Source: Song_about_summer / Shutterstock

Like Tenable, Rapid 7 (NASDAQ:RPD) says that its products enable companies’ technical personnel to find and react to cyberattacks. Rapid 7’s offerings also allow firms to assess and lower their vulnerability to hacks.

Additionally, the IT security company provides its own experts to companies. These experts will prevent and respond to hacks on behalf of Rapid 7’s customers.

In March, a prominent research firm, Forrester, named Rapid 7 “a Strong Performer in The Forrester WaveTM: Cloud Workload Security.” More impressively, the company reported that it had obtained “the highest possible scores in the criteria of cloud security posture management (CSPM), Infrastructure as Code (IaC) security, orchestration platform, and runtime.”

Analysts, on average, expect the company’s EPS to come in at 11 cents this year, much better than the 5 cents per share loss that it reported for 2021. For next year, the mean estimate calls for EPS of 50 cents.

Like Tenable, Rapid7’s market capitalization of $3.4 billion is sufficiently low to enable RPD stock to soar 500% over the next five years.

Cyren (CYRN)

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Israel-based Cyren (NASDAQ:CYRN) is much smaller and more under-the-radar than the first three IT security stocks that I discussed. Currently, the market capitalization of CYRN stock is a tiny $9.3 million.

Last month, the company launched the “Cyren Hybrid Analyzer.” According to CYRN, the Hybrid Analyzer analyzes the “risk” posed by companies’ computer files more quickly and cheaply than competing products.

“New, undetected malware represents upwards of 10% of files but it presents almost all the risk of infection,” Cyren reported.

In June, Cyren noted that “John B. Sanfilippo and Son, Inc (JBSS), one of the largest nut producers in the world” had chosen to use its Inbox Security offering. The nut producer decided to utilize Cyren due to increased “ransomware threats” and adjustments to its insurance policies.

During Q2, the company sold its Secure Email Gateways product in order to focus on more cutting edge, fast growing offerings. Additionally, Cyren noted that the recurring revenue of its anti-phishing product, Cyren Inbox Security, had jumped 87% year-over-year in Q2.

The company’s CEO, Brett Jackson, said that this strong growth showed “The value that Cyren Inbox Security provides enterprise customers that rely on Microsoft 365 as their corporate e-mail platform and who need a more effective defense against the constant threat of phishing, business e-mail compromise, account takeover and ransomware.”

Sumo Logic (SUMO)

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Sumo Logic (NASDAQ:SUMO) provides software-as-a-service business model, enabling companies to monitor their cloud platforms and ensure that they are secure.

The company reports that its software provides its customers with “deep security insights via use-case-driven queries, dashboards and alerts.”

Impressively, Sumo Logic’s customers include major heavyweights such as Visa (NYSE:V), Alaska Air (NYSE:ALK), and Clorox (NYSE:CLX).

For Q2, Sumo Logic’s revenue climbed 26% year-over-year to $74.1 million, while its annual recurring revenue rose 25% year-over-year to $286 million. The company used $12 million of net cash for its operating activities, and it has over $350 million of cash as of July 31.

Cyber Defense Magazine identified Sumo Logic “as having the Best Solution for Cloud Security Monitoring and the Best Product for Security Orchestration Automation and Response.”

The trailing price-sales ratio of Sumo Logic is a relatively low 2.9-times, while its market capitalization of $814 million gives SUMO a great deal of room to advance.

Zscaler (ZS)

Source: Sundry Photography / Shutterstock.com

Zscaler’s (NASDAQ:ZS) platform provide wide-ranging IT security services to companies. Zscaler reports that its cloud-based offerings allow its customers to enable their employees to work securely from any location.

Zscaler’s products utilize a “zero trust” principle that constantly analyzes users’ actions and carries out “checks” to detect potential attacks.

Gartner named Zscaler a leader in the Security Service Edge space, while it won a “20/20 Zero Trust Champion of the Year Award” from Microsoft.

And well-regarded Wedbush analyst Dan Ives recently identified ZS as one of the companies likely to benefit from increased cybersecurity spending by the U.S. government.

Furthermore, last month, UBS named the company “a leader in the cybersecurity space…[that] is well positioned to capture secular growth trends.” UBS also called ZS a “disruptor stock.”

The market capitalization of ZS stock is a relatively high $21.3 billion, and its forward price-earnings ratio is a huge 135. Still, given its tremendous potential and strong growth (analysts, on average, expect its top line to jump to $1.98 billion in 2023 from $1.1 billion this year), the shares could be a 500% mover over the next five years.

Telos (TLS)

Source: metamorworks/Shutterstock

Among Telos’ (NASDAQ:TLS) offerings are Telos Ghost, which “hides users, devices and data” and Telos Advanced Cyber Analytics which provides “actionable intelligence to defend against advanced cyber threats.” Additionally, its Xacta software is a “cyber risk management, monitoring, and reporting” tool.

Telos was recently named by Wedbush as one of the companies likely to get a significant boost from increased spending on cybersecurity by Washington.

Accordingly, on Sept. 12, Wedbush raised its rating on TLS stock to “outperform” from “neutral.” In addition to citing the company’s ability to benefit from federal spending, Wedbush wrote that “more deal conversion on the core Ghost and Xacta fronts are starting to materialize and puts Telos in a strong position of growth into 2023.”

Wedbush hiked its price target on TLS stock to $15 from $9.

TLS stock has a relatively low trailing price-sales ratio of 2.6-times. Thus, the company’s $560 million market capitalization is also relatively low and helps make it one of the under-the-radar cybersecurity stocks that can jump 500% in the next five years.

On the date of publication, Larry Ramer 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.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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