Increasing cyber-attacks due to hybrid lifestyles and rapid digital transformation have highlighted the importance of advanced cybersecurity solutions. As the world becomes more dependent on digital solutions, the demand for cybersecurity products and services is expected to increase commensurately.
However, high interest rates and a potential recession have caused a massive technology sector sell-off, affecting cybersecurity stocks. While the growing demand could help the industry rebound soon, not all stocks are positioned to perform well.
The shares of Cloudflare, Inc. (NET), Rapid7, Inc. (RPD), and Okta, Inc. (OKTA), which have declined substantially over the past month, are not well-positioned to rebound due to their weak current and expected financials. So, we think it could be wise to avoid these stocks now.
Click here to checkout our Cybersecurity Industry Report for 2022
Cloudflare, Inc. (NET)
San Francisco-based NET operates a cloud platform that delivers a range of network services to businesses worldwide. The company provides an integrated cloud-based security solution to secure a range of platforms, including public cloud, private cloud, on-premises, software-as-a-service applications, and Internet of Things (IoT) devices.
NET’s revenue increased 53.7% year-over-year to $212.17 million for its fiscal first quarter, ended March 31, 2022. However, its loss from operations grew 28.1% year-over-year to $40.02 million, while its net loss came in at $41.38 million, representing a 3.5% year-over-year increase. Also, its loss per share was flat at $0.13.
The stock has declined 40.2% in price over the past month to close Friday’s trading session at $65.61.
NET’s poor prospects are apparent in its POWR Ratings; it has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an F grade for Value and a D grade for Momentum and Stability. Click here to see NET’s ratings for Sentiment, Quality, and Growth as well. NET is ranked #24 out of 31 stocks in the F-rated Software – Security industry.
Rapid7, Inc. (RPD)
Boston-based cyber security solutions provider RPD offers a cloud-native insight platform that enables customers to create and manage analytics-driven cyber security risk management programs. It offers its products through term or perpetual software licenses, cloud-based subscriptions, and managed services.
RPD’s total revenue increased 34% year-over-year to $157.38 million for its fiscal first quarter, ended March 31, 2022. However, its adjusted EBITDA loss came in at $1.17 million compared to a $5.76 million loss in the year-ago period, while its non-GAAP net loss grew 549.8% year-over-year to $9.26 million. Also, its non-GAAP loss per share came in at $0.16, representing a 433.3% year-over-year increase.
For the current quarter, ending June 30, 2022, analysts expect RPD’s EPS to decline 71.4% year-over-year to $0.02. Over the past month, the stock has declined 32% in price to close Friday’s trading session at $73.10.
RPD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The stock has a D grade for Value and an F grade for Sentiment.
Click here to see RPD’s ratings for Growth, Stability, Quality, and Momentum. RPD is ranked #22 in the Software – Security industry.
Okta, Inc. (OKTA)
San Francisco-based OKTA provides an identity management platform for enterprises, businesses, universities, and government agencies internationally. Its offerings include Okta Identity Cloud, a platform that offers a suite of products to manage and secure identities, and Single Sign-On, which enables users to access their applications in the cloud or on-premises from various devices with a single entry of their user credentials.
OKTA’s total revenue increased 63% year-over-year to $315.50 million for its fiscal fourth quarter, ended Jan. 31, 2022. However, its non-GAAP net loss came in at $29 million compared to $8 million in income in the prior-year period. Also, its non-GAAP loss per share was $0.18 compared to an EPS of $0.06 in the year-ago period.
Analysts expect OKTA’s EPS to decline 200% for the current quarter ending June 30, 2022, and 171.7% in fiscal 2023. Over the past month, the stock plunged 31.8% in price to close Friday’s trading session at $102.45.
It is no surprise that OKTA has an overall D rating, which equates to Sell in our POWR Rating system. The stock has a D grade for Value, Stability, and Quality.
We have also rated OKTA for Growth, Sentiment, and Momentum. Click here to see all OKTA ratings. OKTA is ranked #26 in the Software – Security industry.
Click here to checkout our Cybersecurity Industry Report for 2022
NET shares were trading at $57.97 per share on Monday afternoon, down $7.64 (-11.64%). Year-to-date, NET has declined -55.92%, versus a -15.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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