Zscaler vs. FireEye: Which Cybersecurity Stock is a Better Buy?
January 29, 2021 at 04:22 AM EST
Cybersecurity is constantly in the headlines. Spending is expected to grow at a double-digit CAGR over the next decade. Two of the top stocks are FEYE and ZS. Patrick Ryan gives his take on which is best.
The cybersecurity industry is blazing hot on the heels of Russia’s successful hack of the United States federal government and SolarWinds.
It's clear that the future of crime and warfare will increasingly take place in cybersecurity. Another catalyst is the rise in WFH (work from home) and online shopping.
ZS by the Numbers
Take a look at ZS's numbers and the first figure that will jump out is its lofty forward P/E ratio of 540.78. ZS is trading at $200, a mere $24 away from its 52-week high of $224. ZS is one of those rare stocks that benefitted from the pandemic, rising from $50 at the start of the pandemic to its current trading price of over $200. This has been a steady rise across the prior year with minimal profit-taking along the way.
The top analysts are still bullish on ZS although the stock has soared across the past year. The analysts have established an average price target of $211.37 for the stock, meaning it has the potential to pop 5.35%. Of the 19 analysts who have studied ZS, 11 recommend buying, eight recommend holding and none advise selling.
The Case for ZS
The transition to remote work combined with secular trends has the potential to spur ZS growth for years to come. The on-site date is being phased out in favor of the cloud, helping the likes of ZS all the more. ZS has the world's largest cloud security platform. ZS's Digital Experience monitoring platforms empower IT personnel to gauge user experience when using business applications, making it that much easier to pinpoint and solve performance issues.
ZS's SZero Trust Exchange routes traffic through the cloud, ensuring in-depth inspection and overarching security. The company's addressable market is around $70 billion, which equates to 150x its top line across the prior year. ZS revenue is up 211% across the past three years. Though ZS is still in the red as opposed to the black, it is rapidly expanding and is now considered a leader in the cloud security field.
FEYE by the Numbers
FEYE traded in the general range of $15 and $8 throughout the prior year all the way up until mid-December when it skyrocketed. FEYE soared up to the $20s and has settled down in this price range in recent months. The stock is currently trading slightly below $22, a mere $3.50 away from its 52-week high of $25.53.
FEYE has a fairly high forward P/E ratio of 63.55. However, the top analysts are not uber-bullish on FEYE, establishing an average price target of $20.86 for the stock, meaning it has around 5% downside.
The Case for FEYE
Though FEYE was hacked by digital thieves who pilfered the company's diagnostic tools, the company is also credited with discovering the SolarWinds hack. FEYE's failure to successfully defend itself against hackers has the potential to cause a decline in revenue as the stolen tools must be replaced. However, FEYE's professional services are up 20% on a year-over-year basis. As long as FEYE's legitimacy is not put into question moving forward, the company will continue to attract investor dollars as the cybersecurity space is red hot.
Which is the Better Pick? Consider the POWR Ratings
The ZS POWR Ratings reveal the stock is solid in nearly every regard. ZS has an "A" grade in the Trade Grade component along with "B" grades in the Peer Grade and Buy & Hold Grade components. ZS is ranked 11th of 25 stocks in the Software - Security category.
FEYE has a "B" grade in the Trade Grade component of the POWR Ratings. However, FEYE also has "C" grades in the Industry Rank and Buy & Hold Grade components along with a "D" grade in the Peer Grade component. Of the 25 publicly traded companies in the Software - Security space, FEYE is ranked 20th.
ZS appears to be the better of the two stocks although the company is not yet profitable. Invest in ZS, hold onto your shares for the long haul and you will likely make money as time progresses.
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ZS shares fell $0.28 (-0.14%) in premarket trading Friday. Year-to-date, ZS has gained 3.15%, versus a 0.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.Zscaler vs. FireEye: Which Cybersecurity Stock is a Better Buy? appeared first on StockNews.com