Generally, people invest in businesses because they either solve common problems or address inefficiencies, making such expenditures accretive. On the other hand, identity management specialist CyberArk Software (NASDAQ:CYBR) basically helps prevent bad circumstances from materializing. Like an insurance policy, a benefit is largely only received when a negative situation is parried. Still, the rising probabilities of these situations make CyberArk incredibly relevant. Therefore, I am bullish on CYBR stock.
The Harsh But Hard Reality of CYBR Stock
In many ways, CYBR stock represents a harsh investment. CyberArk or any other cybersecurity enterprise doesn’t frame the discussion in that manner. However, both people and enterprises generally don’t want to pay for outcomes that might not materialize. Still, when high probabilities mix with rising damages for cyber breaches, companies are compelled to pay for protection.
Stated differently, CYBR stock at least partially gains from the possibility of pain. It’s an inelegant component of the cybersecurity business. To use the modern lexicon, it is what it is.
I’m going to stress that I’m not criticizing CyberArk for this narrative. It’s the same one attached to the cybersecurity industry. For example, blue-chip giant Clorox (NYSE:CLX) generated dubious headlines last year when it disclosed unauthorized activity on some of its IT systems, according to TipRanks reporter Kailas Salunkhe.
To be sure, the incident didn’t merely yield an annoyance. As Salunkhe mentioned, the data breach led to “increased issues with consumer product availability. Furthermore, the cyberattack damaged parts of Clorox’s IT infrastructure, resulting in a widescale disruption in its operations.”
In fairness, management took various steps to rectify the matter. However, the issue also sparked major questions about Clorox’s financial resilience. It also resulted in a severe loss of equity value, which shareholders are yet to fully recover from.
Clorox isn’t the only example, with other well-known publicly traded enterprises having suffered data hacks last year. Some of these incidents involve the payment of millions of dollars in ransom.
It’s an ugly world in the digital realm, there’s no doubt about it. As well, the rising ugliness makes the case for CYBR stock more attractive. As stated earlier, it’s not the most pleasant thesis. However, modern hackers are not messing around, and not proactively mitigating such attacks may lead to devastating consequences.
Threat Profile Only Worsening
According to information cited by The Wall Street Journal, the number of data breaches in the U.S. jumped 78% in 2023 from the prior year. Not only that, but the data breach count in 2022 represented a 72% lift from a blistering figure posted in 2021. Worryingly, the WSJ noted that this trend rings true in other parts of the world.
What adds to the perplexing situation is that organizations have increased their spending on cybersecurity to a record level. Last year, the expenditure reached about $188 billion. Projections call for $215 billion by the end of this year. Nevertheless, hackers continue to strike fear in enterprises. Most problematic of all, the situation will likely worsen in the future.
For example, the rise of generative artificial intelligence – as wonderful as it may be – opens the door for nefarious activities. In particular, AI can help amplify attacks. Digital intelligence may also shorten the learning curve for prospective hackers.
Another challenge is remote work. Naturally, with many companies incorporating a remote or hybrid workforce, this framework expands the scope of vulnerability. With more work being conducted in the cloud, it raises the risk of unauthorized data access. Moreover, the WSJ cited the rapid migration to the cloud as a key contributor to data breaches.
Of course, it’s true that many enterprises are reducing their overhead, which doesn’t spell great news for CYBR stock. In particular, many companies have aggressively reduced their software spending. Moreover, tech giants have been laying off workers.
Still, here’s another harsh point: as incidents like what happened to Clorox become more frequent and more damaging, enterprises will start waking up. In the cybersecurity realm, an ounce of prevention is truly worth more than a pound of cure. That’s the main argument for CYBR stock.
A Valuation Rethink
At the moment, CYBR stock trades at a trailing-year sales multiple of 12.88x. That’s well above the software infrastructure sector’s average multiple of 4.09x. From this angle, it’s easy to characterize CyberArk as overvalued. However, that might be missing important context.
Over the next two years, analysts, on average, project solid growth for CyberArk’s top line. In Fiscal 2024, sales could land at $939.33 million, while in Fiscal 2025, they could hit $1.15 billion. Last year, the company generated sales of $751.89 million.
As stated earlier, the fundamentals are “positive,” at least for stakeholders of CYBR stock. Assuming a share count of 43.15 million, CYBR is really trading around 11.1x projected 2024 revenue. Since the growth projections are fundamentally credible, CyberArk can still grow into its valuation.
Is CyberArk Stock a Buy, According to Analysts?
Turning to Wall Street, CYBR stock has a Strong Buy consensus rating based on 21 Buys, one Hold, and zero Sell ratings. The average CYBR stock price target is $298.75, implying 23.7% upside potential.
The Takeaway: The Digital Realm’s Negativity Should Boost CYBR Stock
Like any other cybersecurity-related enterprise, CyberArk Software doesn’t offer a holistic feel-good story. No one likes paying money for outcomes that may not happen. However, when it comes to data breaches, these incidents are only increasing in scope and scale. Proactively mitigating these challenges represents arguably the only viable solution. In that sense, CYBR stock can still grow into its lofty valuation, as the demand profile is only marching northward.
