Tenable (TENB) is a cybersecurity company with over 35,000 customers globally. The company is focused on vulnerability management.
With cybersecurity, a considerable focus of businesses, is this cybersecurity company set to outperform the market?
I am neutral on Tenable stock.
Cybersecurity in Focus
When the federal government convenes a summit, one knows that a problem is grave. This is just what happened in the summer of 2021. President Biden summoned executives from several tech companies to a summit and signed an executive order to combat cybercrime and cement the need for the government to partner with the private sector.
Businesses are also increasing cybersecurity budgets, and wise companies focus on prevention. Much of the cost of a breach, or another cyberattack, is in the aftermath.
After an attack, a company must often notify customers, clean up systems, rebuild documents, pay for overtime and downtime, in some cases pay ransoms, and many other costs. The smart money is spent upfront on preventative measures; this is where Tenable comes in.
Tenable in Focus
Tenable is an expert company in vulnerability management (VM). Its customers include over 50% of the Fortune 500. The company’s software analyses data across an organization’s entire technology structure to determine risks and make actionable recommendations, among other functions. It is VM for digital assets.
Over the past year, Tenable stock is down a little over 5%. The stock has endured wild swings and traded as low as $35.32 and as high as $58.45. It currently trades just under $50.
According to the company, Tenable has a total addressable market of over $25 billion. Revenue for 2021 is expected to reach $536 million, up from $440 million in 2020. This is an increase of 22%. This growth is solid but not spectacular.
The company is also not yet GAAP profitable; although Tenable is forecasting a non-GAAP operating margin of 9% in 2021, up substantially from -17% just a few years ago in 2017. Tenable is certainly trending in the right direction.
The stock is currently trading at a reasonable forward (December 2022) price-to-sales ratio of 8.5x. Unfortunately, growth stocks are out of favor in the current market due to the fears of rising inflation.
When inflation increases, the Federal Reserve responds with higher interest rates that hurt growth stock valuations due to how Wall Street discounts its future cash flows. Investors should exercise caution given the current macroeconomic situation.
Wall Street’s Take
Over on Wall Street, analysts are extremely bullish on Tenable stock, with a Strong Buy consensus rating based on 12 Buys and no Holds or Sells. The unanimous Buy ratings are telling.
The average Tenable price target of $66.75 implies 34.8% upside potential.
Looking to 2022
Cybersecurity is a massive focus of enterprises of all types going into 2022. Tenable has a fantastic product that is much needed in today’s world. The company has steadily increased customers and revenues over the past several years. Margins are also improving. Investors are looking for top-line growth in 2022 to stay above 20%.
Macroeconomic conditions are currently unfavorable to growth stocks, so there could be a dip in share price upcoming. However, analysts are very bullish on Tenable, and investors should consider accumulating shares on future weakness.
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Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.
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