The “stronger for longer” thesis is currently playing out among cloud-based security software stocks. The transformation that was happening prior to the pandemic has only gained momentum during it, and should sustain afterwards.
The following three security software stocks are top players, and as always, position sizing matters. A smaller amount invested makes more sense. Average in, try to buy on pullbacks, and let the dollar cost averaging strategy pull you into your desired position size over time. Without further ado, here they are:
Okta has a market cap of $33 billion and developed the first cloud-based platform for identity and access management solutions, which is a roughly $25 billion dollar market today. The company is moving upmarket from mid-size to larger companies, and now has more than 320 accounts worth over $500,000 a year and 35 accounts worth over $1,000,000 a year.
The stock recently reached all-time highs, but OKTA is largely unchanged since the report came out. Stepping back, the report hasn’t changed the trajectory of the stock in a meaningful way.
Let’s move on to Zscaler (ZS), which has a market cap of $24 billion. The company is a provider of network security solutions for many of the biggest companies out there. Its software does things like replacing VPN appliances and providing connections that are used to route traffic between an organization’s headquarters and remote locations.
Naturally, these services are in high demand during the pandemic. The company is going after a roughly $20 billion dollar market and it is grabbing more customers and landing bigger deals as customers are now all in on cloud transformation. Even better, EPS should grow faster as the business keeps scaling up and more money flows to the bottom line.
Last up is CrowdStrike (CRWD), which has a market cap of $38 billion. The company provides endpoint security solutions for things like laptops, desktops and IoT devices. CrowdStrike’s platform was born in the cloud so it’s always been there – no messy changes from the on-premise to cloud business model or anything like that here. CrowdStrike is taking market share from legacy players as enterprises are more comfortable turning off their old solutions and moving to the cloud now. The stock has recently reached all-time highs and, although it’s given a little back, is still trading comfortably near those prices.
If you already own these stocks, I think you should continue to hold on. If you don’t, my preference is to buy CrowdStrike (CRWD), followed by Zscaler (ZS). The pace of customer growth, as well as number of modules per customer, make total revenue growth for CrowdStrike just too attractive to pass up.
That doesn’t mean you need to chase it right now, however.