These High-Growth Tech Stocks Are Outperforming In A Tough Market

April 22nd, 2022 by Trefis Team
OKTA: Okta logo
OKTA
Okta

Our theme of Cyber Security Stocks has outperformed, declining by just about 5% year-to-date, compared to the broader Nasdaq-100, which remains down by about 17%. While high-growth, high-multiple tech stocks have seen a big sell-off this year, as investors prepare for sharp increases in interest rates, cyber security stocks have held up better for a couple of reasons.
The Russian invasion of Ukraine is likely to make governments increase their defense and security budgets. We believe that ramping up cybersecurity will be a priority as attacks in the digital space have the potential to cause massive economic damage. Governments, critical infrastructure, and businesses in the U.S. and Europe could be key targets of state-sponsored cyber-attacks, as Russia potentially looks to retaliate against sanctions imposed by Western powers. This could drive up demand for cybersecurity products and services offered by the companies in our theme. Moreover, the broader trend of hybrid working, and the increasing adoption of cloud-based services through the Covid-19 pandemic, has also been boosting demand for cybersecurity products and we expect this to continue even post the pandemic.

Now, that said, there are still risks for the theme. Most of the stocks in our theme trade at price to sales multiples in double digit levels, and many of the companies remain unprofitable. While these companies have grown revenues at a healthy average rate of about 40% over the last year, at these high valuations there’s little margin for error on the growth front. If growth rates cool or miss expectations even slightly, we could see sizable corrections in the stocks.

Within our theme, Okta stock (NASDAQ:OKTA), an identity, and access management company, has been the weakest performer,  declining by about 38% year-to-date. On the other side, Palo Alto Networks stock (NASDAQ:PANW), a cybersecurity company best known for its firewalls, has outperformed, rising by about 8% year-to-date.

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What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Apr 2022
MTD [1]		 2022
YTD [1]		 2017-22
Total [2]
 OKTA Return -8% -38% 442%
 S&P 500 Return -2% -6% 99%
 Trefis Multi-Strategy Portfolio -4% -12% 248%

[1] Month-to-date and year-to-date as of 4/22/2022
[2] Cumulative total returns since the end of 2016

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