A successful portfolio manager is aware of the importance of having well-performing stocks in one’s portfolio. Indicators of a stock’s continued performance include a rise in share price and strong fundamentals.
One such stock that investors need to hold on to right now is CyberArk Software Ltd. CYBR. Though there are a few concerns, these are short lived. The stock has the potential to perform well over the long run.
Though the stock did not perform well last year, but looking at the healthy demand for cyber security solutions and the company’s impressive third-quarter 2017 results, the stock seems to have considerable upside potential.
CyberArk has lost 15.9% of its value year to date against 19.2% growth of its industry.
Let’s take a look at what’s going in favor of the stock.
Rise in Cyber Security Demand
The company is benefiting from the surge in demand for cyber security following cyber attacks that jolted the world last year.
The long list of data breaches has brought to light the fact that a company’s financial well-being, brands and reputation are today increasingly exposed to sophisticated cyber threats. The rapid emergence of of cloud computing and the idea of sharing resources to lower cost have further increased demand for adequate security policies, protocols and products.
Per a recent report by MarketsandMarkets, the cyber security market is expected witness CAGR of 11% from $137.85 billion in 2017 to $231.94 billion by 2022. We believe that CyberArk with its portfolio of cyber security products is well poised to enjoy the growth prospects.
Impressive Third-Quarter Results and Guidance
CyberArk reported impressive results for the third quarter and raised guidance for the full year 2017. These indicate that its ongoing investment in sales and marketing strategies are paying off.
Furthermore, it should be noted that in the second quarter of 2017, the company had reported the slowest revenue growth rate of 14% since its listing in September 2014. Prior to that, it was around 25%. Therefore, its third quarter actual growth rate, along with the fourth quarter projection of around 18% suggests a revival. This makes us optimistic about its long-term revenue prospects.
CyberArk Software Ltd. Revenue (TTM)
CyberArk Software Ltd. Revenue (TTM) | CyberArk Software Ltd. Quote
Strong Balance Sheet
CyberArk has a strong balance sheet with ample liquidity position and no debt obligations. The increasing liquidity and cash flow trend reflects that the company is making investments in the right direction. Moreover, since it carries no long-term debt, the cash is available for pursuing strategic acquisitions, investment in growth initiatives and distribution to shareholders.
However, there are a few concerns related to the stock.
Decelerating Revenue Growth
During fourth-quarter 2016, and the first and second quarters of 2017, year-over-year growth rates were 25%, 26% and 14%, respectively. The decelerating revenue growth trend hurt investors’ confidence as evident from its share price performance.
Increasing Operating Expenses
Higher operating expenses have been hurting its profitability. Escalated operating expenses mainly stem from increased investment toward enhancing product offerings and expanding sales capabilities. Though these investments will have long-term benefits, we expect these to remain a drag on the bottom line in the near term.
We believe, the combination of the above discussed factors along with a long-term earnings growth rate of 21.7% makes this Zacks Rank #3 (Hold) stock’s position in investors’ portfolio secured as of now.
Stocks to Consider
A few better-ranked stocks in the broader technology sector are NVIDIA Corp. NVDA, Broadcom Ltd. AVGO and Micron Technology, Inc. MU, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term EPS growth rate for NVIDIA, Broadcom and Micron is projected to be 10.3%, 13.8% and 10%, respectively.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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