CrowdStrike, Palo Alto Networks Or Zscaler: Which Cyber Security Stock Should You Pick?

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CRWD
CrowdStrike

Cybersecurity stocks have rallied sharply this year, with our indicative theme of six cybersecurity stocks that include Palo Alto Networks (NYSE:PANW) , Zscaler (NASDAQ:ZS), and others up by about 28% year-to-date, on an equally weighted basis. While cybersecurity is a relatively diverse and complex sector, we believe there could be two broad trends driving the surge. Firstly, with the spread of the Coronavirus pandemic, more people have been working from home, and this has required companies to better secure corporate IT infrastructure, driving up demand for cybersecurity tools. Secondly, most of these companies offer their services on a subscription basis, with recurring revenue streams that could make them a stable bet during times of uncertainty. It’s also very likely that the crisis will cause a structural shift in the way businesses operate, benefiting these stocks well past the pandemic. Our theme of Cyber Security Stocks outlines some of the key names in the cybersecurity space and how they have performed in recent years. A part of the analysis is summarized below.

Zscaler ($10 billion market cap, $303 million FY’19 revenue), offers two tools, namely Zscaler Private Access (ZPA) which provides secure access to internally managed applications, that are hosted internally in data centers or in private or public clouds, and Zscaler Internet Access (ZIA), which enables users to connect to externally managed applications such as Microsoft’s Office 365 and Salesforce. The stock has surged by 60% this year, as an increasingly distributed workforce drives demand for the company’s secure access solutions.

Palo Alto Networks ($23 billion market cap, $2.9 billion revenue) is a cybersecurity company best known for its firewalls, which are network security devices that scan for malicious traffic. The company has been increasingly focusing on cloud-based software-as-a-service (SaaS) security tools. While the stock is down slightly year-to-date, partly due to slowing revenue growth, the company could be a good long-term bet as businesses increasingly move online.

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CrowdStrike ($17 billion, $481 million revenue) offers a cloud-delivered endpoint protection platform, which relies on a lightweight software running on the customer’s servers or laptops. These applications, in turn, send data to a cloud-based security system that analyses threats. The stock is up by over 60% year-to-date, as the coronavirus pandemic has expanded the company’s addressable market meaningfully.

Our indicative theme of cybersecurity stocks is up 28% this year. In comparison, Internet infrastructure stocks, which also stand to benefit from growing digitization are almost flat. Are they a better play on the post COVID economy? View our indicative Theme of U.S. listed Internet Infrastructure stocks to find out.

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