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2 Cybersecurity Growth Stocks to Buy Now

One of the biggest stories in corporate America right now is ransomware. The threat of losing access to important digital property is the stuff of nightmares for executives, as the financial consequences can be enormous. It's a tough proposition -- complying with hackers' demands can make companies an even bigger target, but the alternative is a disruption of operations and the loss of critical data, potentially forever.

Investors have quickly identified the opportunity, sending well-known cybersecurity stocks higher in anticipation of increasing cyber attacks in 2021. Rapid7 (NASDAQ: RPD) and Tenable (NASDAQ: TENB) are two fast-growing companies focused on the prevention of malicious digital activity within organizations -- and they're much smaller than their peers, leaving plenty of room for upside.

Two people looking concerned while analyzing data on computer screens.

Image source: Getty Images.

Rapid7

The Rapid7 flagship ''Insight Platform'' is a suite of cybersecurity solutions providing greater visibility to organizations surrounding potential threats. It runs vulnerability management in real time across internal networks and in the cloud where an increasing amount of digital work is migrating to.

As more companies adopt remote work, it's essential that online-based collaborative projects are adequately protected with identity verification at the core. Rapid7's CloudSec segment offers a host of automated Identity Access Management (IAM) processes to ensure unwanted guests aren't accessing critical digital property.

The company is trusted by 9,300 customers worldwide in almost every industry from banking to fast food.

Metric

Q1 2020

Q1 2021

Growth

Revenue

$94.3 million

$117.5 million

24%

Total customers

8,075

8,945

11%

Annualized recurring revenue per customer

$43,500

$51,000

17%

Data source: company filings.

And it's growing quickly. First quarter revenue growth was strong, but annualized recurring revenue was up an even stronger 30%, to $455.8 million. The company is also generating more revenue per customer, suggesting organizations are using an increasing number of its products.

While Rapid7 is currently generating losses, analysts expect a break-even year in 2021 with positive earnings of $0.26 per share in 2022. With revenue growing at the current pace, it won't take long for the company to scale and significantly boost earning potential.

In April, Rapid7 completed its acquisition of Velociraptor, an open source technology used for digital forensics and incident response, which it plans to continue building while leveraging the assets to enhance its current product line.

Tenable Holdings

Tenable is a cloud-focused threat detection platform with the industry's broadest common vulnerabilities and exposures (CVE) coverage. A database of 166,000 CVEs is publicly disclosed and managed by a division of the U.S. Department of Homeland Security -- and Tenable has an answer for over 64,000 of them.

The company's suite of products aims to "see" every digital asset within an organization, constantly scanning them to make predictions about potential security risks. When a high-profile issue is discovered, Tenable resolves it in less than 24 hours (on a median basis) -- making it the fastest in the industry.

Over 30,000 customers use Tenable worldwide (including the initial free versions), and the company can boast serving over 50% of the Fortune 500. It's also trusted by an undisclosed number of U.S. government agencies.

Metric

Q1 2020

Q1 2021

Growth

Revenue

$102.6 million

$123.2 million

20%

Net loss

($23.0 million)

($7.7 million)

N/A

Data source: company filings.

Tenable grew revenue 20% in the first quarter, and it also managed to keep its operating expenses steady, rising just over 1%. This led to a substantial reduction in its net loss as the company inches closer to profitability.

It also added 331 new enterprise platform customers in the quarter, while customers with a minimum $100,000 annual contract value jumped 30% year over year to 866.

While Tenable reported a GAAP loss last quarter, management expects to generate non-GAAP full-year earnings of $0.24 to $0.28 per share. With the stock down about 20% year to date, now could be a great time for investors to begin building their position in the stock.

Both Tenable and Rapid7 are focused on protecting companies facing an ever-growing number of cyber vulnerabilities. As more of the corporate sector moves online, it's unlikely such threats will abate in the future, so these cybersecurity outfits have a large (and growing) addressable market. Both stocks sport a market capitalization of less than $6 billion as of this writing, making them significantly smaller than many of their industry rivals and therefore leaving them long runways for growth.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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