2 Cloud Security Stocks to Buy, 2 to Sell

The remote lifestyle and a rapid digital transformation have led to increasing ransomware attacks and generalized hacking, given the heightened dependency on cloud computing. Investors’ interest in the cloud security space is partly evident in the First Trust NASDAQ Cybersecurity ETF’s (CIBR) 6.5% returns over the past month.

According to cybersecurity firm Sophos, the average total cost of recovery from a ransomware attack has more than doubled in a year, increasing to $1.85 million in 2021 from $761,106 in 2020. So, cloud security companies’ products and solutions are expected to be in high demand in the coming months. However, not all companies are expected to perform well in this crowded space.

Given this backdrop, we think it could be wise to scoop up the shares of quality cloud security stocks Mimecast Limited (MIME) and Qualys, Inc. (QLYS) based on  their continuing innovations. In contrast, we think it is better to avoid Okta, Inc. (OKTA) and Rapid7, Inc. (RPD) because  their near-term prospects look bleak.

Click here to checkout our Cybersecurity Industry Report for 2021

Stocks to Buy:

Mimecast Limited (MIME)

Headquartered in London, MIME provides cloud security and risk management services for corporate information and email. The company offers its Mimecast Email Security solution, which protects against the delivery of malware, malicious URLs, and attachments.

On August 17, MIME agreed on a strategic API integration with Humio, a CrowdStrike company. Jules Martin, vice president, ecosystem & alliances at MIME, said, “Our integration with Humio helps provide organizations increased visibility with live searches and real time dashboards, empowering threat hunting teams to find potentially malicious activity before it lands in an inbox.”

MIME’s total revenue increased 24% year-over-year to $142.50 million for its fiscal first quarter, ended June 30, 2021. The company’s adjusted EBITDA grew 22.3% year-over-year to $38.60 million, while its non-GAAP net income increased 53.9% year-over-year to $21.70 million. Also, its non-GAAP EPS increased 45.4% year-over-year to $0.32.

Analysts expect MIME’s EPS to increase 16.7% year-over-year to $1.47 in its fiscal year 2023. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, the company’s revenue is expected to increase 16.1% year-over-year to $582 million in fiscal 2022. Over the past six months, the stock has gained 66.2% in price to close yesterday’s trading session at $68.03.

MIME’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

The stock has a B grade for Growth and Quality. Within the Software - Application industry, MIME is ranked #12 of 160 stocks. To see MIME’s ratings for Value, Stability, Momentum, and Sentiment, click here.

Click here to check out our Software Industry Report for 2021

Qualys, Inc. (QLYS)

QLYS in Redwood City, Calif., provides cloud-based information technology, security, and compliance solutions internationally. The company offers Qualys Cloud Apps, including Vulnerability Management, Detection and Response, Threat Protection, and Continuous Monitoring. In addition, it provides asset tagging and management, reporting and dashboards, questionnaires and collaboration, remediation and workflow, and big data correlation.

On August 9, QLYS announced it had agreed to acquire TotalCloud, a cloud workflow management, and no-code automation platform. The acquisition is expected to further strengthen QLYS’ Cloud Security solution and allow customers to build user-defined workflows for custom policies and execute them on-demand for simplified security and compliance.

QLYS’ revenues increased 12% year-over-year to $99.70 million for its fiscal first quarter, ended June 30, 2021. The company’s adjusted EBITDA grew 9% year-over-year to $46.70 million, while its non-GAAP net income increased 4.3% year-over-year to $31.61 million. Also, its non-GAAP EPS increased 6.7% year-over-year to $0.79.

For its fiscal year 2021, analysts expect QLYS’ EPS and revenue to increase 6.3% and 12.1%, respectively, year-over-year to $3.05 and $406.79 million. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 16.3% in price over the past year to close yesterday’s trading session at $114.84.

QLYS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. It has an A grade for Quality.

Click here to access the additional POWR Ratings for QLYS (Growth, Value, Stability, Sentiment, and Momentum). QLYS is ranked #5 of 27 stocks in the Software - Security industry. 

Stocks to Avoid:

Okta, Inc. (OKTA)

San Francisco’s 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 24% year-over-year to $315.50 million for its fiscal second quarter, ended July 31, 2021. However, the company’s operating expenses grew 145.4% year-over-year to $477.83 million. In comparison, its non-GAAP net loss was $16.29 million, versus $9.92 million in income in the prior year period. Also, its non-GAAP loss per share came in at $0.11, compared to $0.07 EPS in the year-ago period.

Analysts expect OKTA’s annual revenue to increase 49.4% year-over-year to $1.25 billion in its fiscal year 2022. However, its EPS is expected to decline 763.6% in fiscal 2022 and remain negative in the current and next year. Over the past six months, the stock declined 3.6% in prices to close yesterday’s trading session at $256.28.

It’s 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 Growth, Value, Stability, and Quality.

We’ve also rated OKTA for Sentiment and Momentum. Click here to see all OKTA ratings. OKTA is ranked #49 of 60 stocks in the Software - Business industry.

Rapid7, Inc. (RPD)

Cyber security solutions provider RPD, which is headquartered in Boston, Mass., 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 a term or perpetual software licenses, cloud-based subscriptions, and managed services.

RPD’s total revenue increased 28% year-over-year to $126.42 million for its fiscal second quarter, ended June 30, 2021. However, the company’s operating expenses grew 27.4% year-over-year to $109.04 million. Also, its total liabilities increased 58.7% sequentially to $1.33 billion.

RPD’s annual revenue is expected to increase 27% year-over-year to $522.59 million in its fiscal year 2021. However, analysts expect its EPS to remain negative in fiscal 2021. Over the past month, the stock has only gained 5.6% in price to close yesterday’s trading session at $125.27.

RPD’s poor prospects are apparent in its POWR Ratings. It has a D grade for Value. Click here to see the additional POWR ratings for RPD (Growth, Momentum, Stability, Quality, and Sentiment). It is ranked #18 in the Software - Security industry.

Click here to checkout our Cybersecurity Industry Report for 2021

MIME shares were trading at $68.42 per share on Thursday afternoon, up $0.39 (+0.57%). Year-to-date, MIME has gained 20.37%, versus a 22.17% rise in the benchmark S&P 500 index during the same period.

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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