In today's ever-changing digital landscape, security software solutions play a vital role in safeguarding valuable data. Their ability to prevent or minimize data breaches is fundamental to the success of the continuously growing digital transformation in the business sphere.
Given this backdrop, investors could buy fundamentally strong software-security stocks, OneSpan Inc. (OSPN), Clear Secure, Inc. (YOU), and Radware Ltd. (RDWR) trading under $25.
Enterprises depend heavily on software solutions to optimize processes, improve customer experiences, obtain data-driven insights, and safeguard their systems as they adapt to and compete in the dynamic digital landscape. Undoubtedly, the burgeoning digital transformation stands out as a primary catalyst propelling the expansion of the software industry.
Therefore, the U.S. software market is estimated to grow at a CAGR of around 7.2% from 2024 to 2030.
Nearly a quarter (24%) of business leaders in 2024 acknowledge that managing and preventing cybersecurity threats poses a pivotal challenge. As businesses increasingly hinge on technology for their day-to-day functions, safeguarding against cyberattacks and data breaches becomes imperative to avert potential financial, legal, and reputational ramifications.
Hence, the security software market is projected to reach $51.46 billion, expanding at a CAGR of 13.9% by 2029. Also, spending on data privacy and cloud security is projected to record the highest growth rates in 2024, with each segment increasing more than 24% year-over-year.
Gartner predicts that by 2025, 75% of the world’s population will have personal data covered by modern privacy regulations.
Given these encouraging trends, let’s look at the fundamentals of the top three Software - Security stocks, beginning with the third choice.
Stock #3: OneSpan Inc. (OSPN)
OSPN designs, develops, and markets digital solutions for identity, authentication, and secure digital agreements worldwide. The company offers OneSpan Sign, a range of e-signature requirements for occasional agreements to processing tens of thousands of transactions, and OneSpan Cloud Authentication, a cloud-based multi-factor authentication solution.
OSPN’s trailing-12-month EBIT margin of 4.73% is 2.3% higher than the industry average of 4.63%. Likewise, the stock’s trailing-12-month gross profit margin of 68.43% is 39.5% higher than the industry average of 49.07%. Its trailing-12-month ROTC of 3.69% is 42% higher than the industry average of 2.60%.
During the first quarter that ended March 31, 2024, OSPN’s total revenue increased 12.5% year-over-year to $64.83 million. Its gross profit grew 20.6% year-over-year to $47.40 million. Its adjusted EBITDA came in at $19.79 million, compared to a negative $1.64 million in the previous-year quarter.
Additionally, the company’s net income was $16.69 million, compared to a net loss of $3.69 million in the prior year’s quarter. Also, its net income per share came in at $0.43, compared to a loss per share of $0.09 in the same quarter of 2023.
Analysts expect OSPN’s revenue for the third quarter (ending September 2024) to increase marginally year-over-year to $59.05 million. Its EPS is expected to rise 137% year-over-year to $0.21 for the same quarter. Furthermore, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of OSPN have gained 25.9% over the past month to close the last trading session at $12.60.
OSPN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
OSPN has a B grade for Growth and Value. It is ranked #6 among 22 stocks in the B-rated Software - Security industry.
Click here to access additional OSPN ratings (Momentum, Sentiment, Quality, and Stability).
Stock #2: Clear Secure, Inc. (YOU)
YOU operates a secure identity platform under the CLEAR brand name, primarily in the U.S. The company’s secure identity platform is a multi-layered infrastructure consisting of a front-end, including enrollment, verification, and linking, as well as a back-end.
On May 21, 2024, YOU and Wellstar Health System, one of the largest healthcare systems in Georgia, launched a new initiative to simplify further and speed up the patient check-in process. The initial pilot site is now operational, and there are plans for expansion in the latter part of 2024.
On May 16, 2024, YOU, an authorized TSA PreCheck enrollment provider, expanded its locations to enroll and renew consumers in the Trusted Traveler program by opening a new location at Seattle-Tacoma International Airport (SEA).
The launch of the enrollment location at SEA represents the ongoing expansion of YOU's national TSA PreCheck enrollment footprint. Throughout 2024, YOU will continue delivering convenience to consumers by launching additional locations and extended hours of operation for enrollment and renewals.
YOU’s trailing-12-month gross profit margin of 62.58% is 27.5% higher than the industry average of 49.07%. Also, its trailing-12-month EBIT margin of 8.82% is 90.7% higher than the industry average of 4.63%. Likewise, its trailing-12-month EBITDA margin of 10.77% is 10.7% higher than the industry average of 9.72%.
YOU’s revenue increased 35.3% year-over-year to $179.05 million in the first quarter that ended March 31, 2024. Its operating income came in at $23.69 million, compared to an operating loss of $15.06 million in the previous-year quarter. Its net income was $32.09 million, compared to a net loss of $8.27 million in the prior year’s quarter.
Additionally, the company’s net income per common share came in at $0.20, compared to a loss per common share of $0.06 in the same quarter of 2023.
Analysts predict YOU’s revenue for the second quarter (ending June 2024) to increase 22.7% year-over-year to $183.82 million. Its EPS for the ongoing quarter is expected to grow 72.6% from the prior year’s quarter to $0.26. Moreover, the company has an excellent earnings surprise history, surpassing consensus revenue and EPS estimates in each of the trailing four quarters.
YOU’s stock has surged marginally intra-day to close the last trading session at $17.10.
YOU’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
YOU has an A grade for Value and Growth and a B for Quality. It is ranked #5 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have YOU ratings for Momentum, Sentiment, and Stability. Get all YOU ratings here.
Stock #1: Radware Ltd. (RDWR)
RDWR develops, manufactures, and markets cyber security and application delivery solutions for cloud, on-premises, and software-defined data centers. The company operates in two segments: Radware's Core Business and The Hawks' Business.
On May 14, 2024, RDWR signed a managed security service provider (MSSP) agreement with Lightpath, an all-fiber, infrastructure-based connectivity provider. Under the agreement, Lightpath is leveraging RDWR’s AI-powered DefensePro DDoS Protection to offer customers a DDoS scrubbing service designed to combat today’s increasingly complex threats.
On April 17, RDWR introduced a new AI-powered, rule-free edition of its DNS DDoS Protection solution. Leveraging RDWR’s patented algorithms, the enhanced version automatically distinguishes between legitimate and attack traffic and instantly adapts DDoS defenses based on the specific attacker.
For DNS service providers or companies that host their own DNS services, this new solution can significantly shorten the time to resolution and reduce the total cost of ownership when countering even the most sophisticated DNS DDoS attack campaigns.
RDWR’s trailing-12-month gross profit margin of 80.10% is 63.2% higher than the industry average of 49.07%.
RDWR reported revenue of $65.09 million during the first quarter, which ended March 31, 2024. Its non-GAAP net income grew 12.3% year-over-year to $6.83 million. The company’s non-GAAP net earnings per share rose 14.3% from the prior year’s quarter to $0.16.
Additionally, as of March 31, 2024, the company’s cash and cash equivalents stood at $74.63 million, compared to $70.54 million as of December 31, 2023.
Street expects RDWR’s revenue for the second quarter (ending June 2024) to increase marginally year-over-year to $65.99 million, and its EPS for the same quarter is expected to grow 61.3% year-over-year to $0.16. Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
Shares of RDWR have soared 24.4% over the past month to close the last trading session at $20.20.
RDWR’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Sentiment. Within the same industry, RDWR is ranked #2.
Click here to access additional ratings of RDWR for Stability, Value, and Momentum.
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YOU shares rose $0.55 (+3.22%) in premarket trading Thursday. Year-to-date, YOU has declined -15.50%, versus a 11.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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