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Shweta Kumari

3 Software Security Stocks to Keep an Eye on in 2023

Owing to the increasing number of cyber-attacks and tech dependency, it could be worth watching prominent cybersecurity stocks Fortinet, Inc. (FTNT), Check Point Software Technologies Ltd. (CHKP), and OneSpan Inc. (OSPN) this year.

Recently several organizations have gone through accelerated digital transformation and migration to the cloud, which has increased the risk of cyberattacks and inconsistent security policies. Moreover, after the ransomware attacks on the largest industries in the United States, the interest in software security companies has risen dramatically.

According to Cisco Systems, Inc.’s (CSCO) annual Security Outcomes Report released in December 2022, cybersecurity resilience emerges as a top priority for 96% of executives surveyed.

Over the past year, the Russia-Ukraine war has exposed Western countries to increased cyberattacks and online security risks. According to Statista, global cybercrime costs are expected to surpass $11 trillion in 2023

Increasing cyber-attacks and reliance on internet connectivity have significantly benefitted the cybersecurity industry, and the likelihood of a continually evolving threat landscape stands high due to the rapid digitalization of business operations and migration to cloud platforms.

The global cybersecurity market is projected to grow at a CAGR of 12.3% from 2023 to 2030. With digital transformation accelerating, the need and demand for software security should grow in tandem. Therefore, it might be wise to add fundamentally sound software security stocks FTNT, CHKP, and OSPN to your watchlist this year.

Fortinet, Inc. (FTNT)

FTNT offers comprehensive, integrated, and automated cybersecurity solutions internationally. It sells FortiGate hardware and software licenses, which enable a range of networking and security features. It also provides security subscriptions, technical support, and training services.

On February 6, FTNT unveiled new ASIC technology, FortiSP5, to accelerate the convergence of networking and security across every network edge. FortiSP5 delivers unparalleled levels of power-efficient performance to open new frontiers for securing the branch, campus, 5G, edge computing, operational technologies, and more. This new introduction is expected to reap significant gains for the company.

For the fiscal fourth quarter that ended December 31, 2022, FTNT’s total revenue increased 33.1% year-over-year to $1.28 billion. Its non-GAAP operating income rose 52% from the prior-year quarter to $417.60 million. Non-GAAP net income attributable to FTNT and non-GAAP net income per share attributable to FTNT came in at $349.70 million and $0.44, up 69.9% and 76% from the prior-year period, respectively.

Analysts expect FTNT’s EPS and revenues to increase 52.8% and 25.9% year-over-year to $0.29 and $1.20 billion, respectively, for the fiscal first quarter (ended March 31, 2023). The stock surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 10.4% over the past three months to close the last trading session at $60.21.

FTNT’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality and a B for Growth and Sentiment. The stock is ranked first of 21 stocks in the Software - Security industry. Click here to see the other ratings of FTNT for Value, Momentum, and Stability.

Check Point Software Technologies Ltd. (CHKP)

CHKP is a leading provider of cyber security solutions to corporate enterprises and governments globally. It offers network security, endpoint security, data security, and management solutions to enterprises, service providers, small and medium-sized businesses, and consumers.

On February 13, CHKP introduced Check Point Quantum SD-WAN, designed to provide comprehensive prevention against zero-day, phishing, and ransomware attacks and delivers optimized routing for users and over 10,000 applications.

The new software blade combines the highest level of security with optimized network and internet connectivity to protect branch offices from the fifth generation of cyberattacks. Such high-security capability is expected to attract robust demand and boost the company’s revenues.

In the same month, Frost & Sullivan recognized CHKP as a strong innovator and a growth leader in the Frost Radar™ Global Cloud Native Application Protection Platform (CNAPP) report.

Anh Tien Vu, Industry Principal at Frost & Sullivan, said, “Check Point continues to leverage its strong cybersecurity portfolio and has taken a cloud-centric approach over the last 2 years to come up with a feature-rich CNAPP solution that features capabilities needed for customers to protect their cloud assets, applications, network, and workloads with one unified platform.”

In the fiscal fourth quarter (ended December 31, 2022), CHKP’s total revenues increased 6.6% year-over-year to $638.50 million. The company’s non-GAAP operating income and non-GAAP net income increased marginally year-over-year to $288.90 million and $301 million, respectively. Also, its non-GAAP EPS came in at $2.45, representing an 8.9% year-over-year improvement.

The consensus EPS estimate of $1.73 for the fiscal first quarter (ending March 31, 2023) represents a 10.3% improvement year-over-year. The consensus revenue estimate of $569.11 million for the current quarter indicates a 4.8% increase from the same period the prior year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 3.3% over the past six months to close the last trading session at $125.66.

CHKP’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. It has an A grade for Quality. It is ranked #2 within the same industry.

Click here to see the POWR Ratings of CHKP (Growth, Value, Momentum, Stability, and Sentiment).

OneSpan Inc. (OSPN)

OSPN designs, develops, and markets digital solutions for identity, security, and business productivity that protect and facilitate electronic transactions via mobile and connected devices.

On February 16, the company launched OneSpan Notary, an all-in-one cloud-connected solution that enables organizations to transform the way notaries and customers complete agreements and notarize documents in a secure and trusted environment. This new innovative cloud notarization solution mitigates fraud and security risks to strengthen the protection of Web3.

On January 26, OSPN announced an agreement to acquire ProvenDB, an Australia-based startup that delivers secure storage and vaulting for documents based on blockchain technology, to provide an industry-leading trust model for high-assurance contracts and documents. This acquisition is expected to extend the company’s capabilities for future blockchain-based digital transaction solutions for Web3.

OSPN’s total revenue increased 9.3% year-over-year to $57.15 million in its fiscal third quarter that ended September 30, 2022. Its gross profit grew 5.6% from its year-ago value to $38.43 million. The company’s adjusted EBITDA came in at $4.51 million, representing a 162.8% improvement year-over-year.

Street expects OSPN’s revenue for its fiscal first quarter ending March 31, 2023, to increase 5.5% year-over-year to $55.32 million. Also, its EPS is expected to increase by 2% per annum over the next five years. The company surpassed the revenue estimates in each of the trailing four quarters, which is excellent.

OSPN’s shares have gained 19.2% in price over the past six months to close the last trading session at $13.76. The stock has gained 23% year-to-date.

It is no surprise that OSPN has an overall B rating, which equates to Buy in our POWR Ratings system. OSPN also has a B grade in Growth and Sentiment. In the same industry, OSPN is ranked #3 of 21 stocks.

In addition to the POWR Ratings I have just highlighted, one can see OSPN’s Value, Momentum, Stability, and Quality ratings here.

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FTNT shares were trading at $59.85 per share on Thursday afternoon, down $0.36 (-0.60%). Year-to-date, FTNT has gained 22.42%, versus a 3.86% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


3 Software Security Stocks to Keep an Eye on in 2023
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