CrowdStrike's (NASDAQ: CRWD) stock price tumbled 11% on July 19 after the cybersecurity company's flawed software update for Windows PCs sparked a global IT outage across banks, airports, hospitals, government agencies, retailers, and other businesses. The company says it's already identified the issue and is in the process of rolling back the disastrous update, but it's still too early to assess the long-term damage to its business and brand.
This seems like a black swan event for CrowdStrike, one of the cybersecurity sector's fastest-growing companies. Its revenue rose at a compound annual growth rate (CAGR) of 65% from fiscal 2019 to fiscal 2024 (which ended this January), its stock surged 265% over the past five years, and it now serves about 60% of the Fortune 500 companies.
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CrowdStrike should eventually recover and keep growing as its cloud-native endpoint security platform replaces more on-site appliances. But its stock isn't cheap at 19 times this year's sales, and analysts will likely rein in their near-term forecasts. So instead of wondering if CrowdStrike can right its ship without hitting another iceberg, you might instead consider investing in three of its peers: Zscaler (NASDAQ: ZS), Palo Alto Networks (NASDAQ: PANW), and SentinelOne (NYSE: S).
1. Zscaler
Zscaler, like CrowdStrike, is a cloud-native cybersecurity company that doesn't install any on-site appliances. But instead of offering a wide range of security services like CrowdStrike, Zscaler mainly provides "zero-trust" services that treat everyone as a potential threat. That approach can stop internal threats like corporate spies and disgruntled employees. According to Fortune Business Insights, the global zero-trust market could still grow at a CAGR of 17% from 2023 to 2030.
Zscaler went public in 2018, and its revenue rose at a CAGR of 52% from fiscal 2019 to fiscal 2023 (which ended last July). Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also grew at a CAGR of 70%.
Like many of its peers, Zscaler has been struggling with slower growth as the macro headwinds made it harder to acquire new customers. But from fiscal 2023 to fiscal 2026, analysts still expect its revenue to grow at a CAGR of 26% as its adjusted EBITDA increases at a CAGR of 40%. Based on those expectations, its stock doesn't look that expensive at 13 times this year's sales and 56 times its adjusted EBITDA.
2. SentinelOne
SentinelOne aims to disrupt the cybersecurity market with its Singularity extended detection and response (XDR) platform. The company claims Singularity's AI algorithms can completely replace teams of human analysts.
That's a bold claim, but SentinelOne has grown like a weed since its public debut in 2021. From fiscal 2022 to fiscal 2024 (which ended this January), its revenue rose at a CAGR of 74%. However, its stock has declined nearly 40% below its initial public offering (IPO) price of $35 as the macro and competitive headwinds throttled its near-term growth.
Analysts still expect its revenue to rise at a CAGR of 27% from fiscal 2024 to fiscal 2027 as the macro environment warms up and it expands Singularity's ecosystem. They also expect its adjusted EBITDA to finally turn positive in fiscal 2026. SentinelOne is still a speculative play, but it looks reasonably valued at 7 times this year's sales.
3. Palo Alto Networks
Palo Alto Networks started out as a provider of next-gen firewalls, which added more network filters to traditional firewalls. Today, those on-site firewalls serve as the foundation of its Strata network security platform. However, Palo Alto also provides cloud-based services through its Prisma platform along with AI-powered threat detection tools on its Cortex platform. Most of its growth has been driven by Prisma and Cortex, which it refers to collectively as its "next-gen security" (NGS) services.
Palo Alto went public in 2012, and its revenue grew at a CAGR of 35% from fiscal 2012 to fiscal 2023 (which ended in July 2023). It now serves more than 80,000 enterprise customers as one of the largest cybersecurity companies in the world. Its growth also slowed down as it faced tougher macro challenges over the past year, but that deceleration was exacerbated by a "platformization strategy" driven by free trials and deferred revenue deals for some of its newer services.
But from fiscal 2023 to fiscal 2026, analysts still expect Palo Alto's revenue to grow at a CAGR of 16% as its earnings per share rises at a CAGR of 49% on a generally accepted accounting principles (GAAP) basis. It might seem a bit pricey at more than 50 times its forward adjusted earnings, but its scale, diversification, and rising profits arguably justify that higher valuation.
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Leo Sun has positions in CrowdStrike and Palo Alto Networks. The Motley Fool has positions in and recommends CrowdStrike, Palo Alto Networks, and Zscaler. 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.
