The demand for cybersecurity is at near record highs because cyberattacks have become more frequent over the past year. A massive U.S. government and corporate data breach last year, the Colonial Pipeline attack last month, and several other attempts to attack government agencies and corporations have heightened the demand for highly secure cyber security solutions in the United States and globally. In light of these developments, Gartner predicts cybersecurity spending will increase 12.4% year-over-year to $150.40 billion in 2021.
However, investor optimism over the industry’s solid growth prospects has led to valuations that in some cases are inconsistent with companies’ growth potential.
In considering the current financials and growth prospects of CrowdStrike Holdings, Inc. (CRWD), Fortinet, Inc. (FTNT), and Zscaler, Inc. (ZS), we think their shares look extremely overvalued at the current price levels. So, these stocks are best avoided now.
CrowdStrike Holdings, Inc. (CRWD)
CRWD specializes in cloud-delivered solutions. The company’s Falcon platform offers a set of cloud-delivered technologies that provide a wide range of products that include antivirus, endpoint detection and response (EDR), device control, managed threat hunting, information technology (IT) hygiene, vulnerability management and threat intelligence.
In terms of non-GAAP forward P/E, CRWD is currently trading at 553.77x, 2,018.6% higher than the 26.14 industry average. Its 35.65 forward Price/Sales multiple is 776.4% higher than the 4.07 industry average.
CRWD’s total revenues increased 70.1% year-over-year to $302.84 million in its fiscal first quarter, ended April 30. However, its loss from operations grew 38.9% from the year-ago value to $31.35 million, while its net loss attributable to the company increased 342.5% year-over-year to $85.05 million. The company’s net loss per share increased 322.2% year-over-year to $0.38.
A $1.35 billion consensus revenue estimate for the current year indicates a 54.9% improvement from last year. Analysts expect the company’s EPS to come in at $0.38 in the current year, indicating a 40.7% rise year-over-year.
CRWD has gained 1.6% year-to-date. The stock declined marginally intraday to close yesterday’s trading session at $215.14.
CRWD’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. CRWD also has a D grade for Value and Stability. It is ranked #11 among the 13 stocks in the F-rated Software – SAAS industry. Click here to view additional CRWD Ratings.
Fortinet, Inc. (FTNT)
Fortinet, Inc. provides broad, integrated, and automated cybersecurity solutions in the United States and internationally. The Fortinet Security Fabric is a leading cybersecurity platform in the industry and provides security for the most critical challenges in networked, application, cloud, or mobile environments. Fortinet Network Security Institute offers the industry’s largest and broadest cybersecurity training programs.
In terms of non-GAAP forward P/E, FTNT is currently trading at 60.86x, 132.8% higher than the 26.14x industry average. The company’s forward 38.80 EV/EBITDA ratio is 129.45% higher than the 16.91 industry average.
FTNT’s revenue increased 23% year-over-year to $710.3 million in the first quarter, ended March 31. The company’s operating income stood at $121.6 million, up 4.2% from the same period last year. FTNT’s net income grew 2.5% from its year-ago value to $107.2 million. Its EPS increased 6.7% year-over-year to $0.64.
A $743.6 million consensus revenue estimate for the fiscal second quarter, ending June 30, 2021, indicates a 20.8% improvement from the same period last year. Analysts expect the company’s EPS to come in at $0.88 in the same quarter, indicating a 7.3% rise year-over-year. Furthermore, FTNT surpassed Street’s EPS estimates in each of the trailing four quarters. Shares of FTNT declined 53.1% year-to-date.
FTNT’s POWR Ratings reflect its poor prospects. The stock has a grade of D for Value. It is ranked #8 in the D-rated, 24-stock Software – Security industry.
Beyond what we’ve stated above, we have also rated FTNT for its other components. Click here to view all FTNT Ratings.
Zscaler, Inc. (ZS)
ZS provides two basic cloud services—Zscaler Internet Access (ZIA), and Zscaler Private Access (ZPA). ZS is responsible for cyber security for more than 400 of the Forbes Global 2000 companies. The company offers its services through a purpose-built, globally distributed platform.
On May 25, ZS agreed to acquire Smokescreen Technologies, a leader in active defense and deception technology. However, it may take a while for ZS to generate profits from this acquisition because the deal is not expected to close before ZS’ fiscal fourth quarter.
In terms of non-GAAP forward P/E, ZS is currently trading at 412.12x, 1,476.7% higher than 26.14x the industry average. Its 40.19 forward Price/Sales multiple is 888.2% higher than the 4.07 average of 4.07.
ZS’ revenues increased 60% year-over-year to $176.4 million in its fiscal third quarter, ended April 30. Its loss from operations grew 113.8% from the year-ago value to $43.85 million. ZS’ net loss came in at $58.46 million, indicating a 202.3% fall year-over-year. The company’s loss per share increased 186.7% year-over-year to $0.43.
Analysts expect the company’s EPS to decline 14.3% year-over-year in the next quarter ending October 2021. The stock declined 2.5% year-to-date.
It’s no surprise that ZS has an overall D rating, which equates to Sell in our POWR Ratings system. ZS also has a D grade for Value and Stability. It is ranked #19 in the Software-Security industry.
To see additional POWR Ratings for Growth, Sentiment, Momentum and Quality, click here.
CRWD shares were trading at $214.99 per share on Wednesday afternoon, down $0.15 (-0.07%). Year-to-date, CRWD has gained 1.50%, versus a 13.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More…