Israel-based IT security company CyberArk (CYBR) appears to be poised to get a big lift from the AI Revolution. Additionally, a number of banks that cover its stock are impressed with the company, and it is growing rapidly, indicating that its products are solid and in high demand.
Also importantly its integrated approach to security likely appeals to many companies and government agencies, and it may be poised to get a significant boost from Washington’s focus on cybersecurity.
While the stock’s valuation is very high, the shares can keep advancing as long as CYBR continues to grow rapidly. Additionally, the company is likely to be acquired at some point at a large premium to its current share price.
Its status as a likely takeover target will help keep its valuation elevated, and investors who hold onto the name will probably realize a significant profit if the firm is acquired.
In light of all of these points, I recommend that long-term growth investors looking for increased exposure to the cybersecurity sector buy CYBR.
Poised to Benefit From the Explosive Growth of AI
Asked in February why CYBR is ” well-positioned to secure AI agents,” CYBR CEO Matthew Cohen said that “AI agents, acting like both machines and humans, require dynamic security as they access data and infrastructure. ” The company’s ” identity security platform is designed to manage such dynamic privileges,” while its ” tools for dynamic secure access and machine identity offerings” allow it to provide efficacious protection for these agents, the CEO explained.
Providing evidence to support Cohen’s assertion, tech instructor Gil Adda, who does not appear to be affiliated with CyberArk, recently wrote that the company’s AgentGuard “counters” the main cybersecurity threats to AI agents.
According to Adda’s LinkedIn profile, he has “delivered workshops on IoT, robotics, AI, and innovation for top organizations like Wix, Microsoft, and Mercantile Bank.”
Banks Are Impressed and CYBR Is Expanding Quickly
In the wake of CYBR’s Investor Day in February, three banks issued upbeat notes on CYBR stock. Noting that the company predicted that its annual recurring revenue would grow at a compound annual growth rate of 18% and reach $2.3 billion in 2028, investment bank DA Davidson called the outlook conservative. The bank believes that CYBR has been adding a multitude of new customers, many of whom are large enterprises, and it kept a $475 price target and a Buy rating on the name.
Calling CYBR a top pick in the cybersecurity sector, investment bank Stifel wrote that the company’s goal of a free cash flow margin of 27% had exceeded investors’ expectations. Additionally, Stifel expects the company to benefit from the expansion of machine identity and AI.
Finally, Japanese bank Mizuho wrote that CYBR is “strongly positioned for its next phase of growth.” It kept a $450 price target and an Outperform rating on the name.
Meanwhile, in the fourth quarter, the company’s revenue surged 41% versus the same period a year earlier to $223 million, while its subscription revenue soared 62% year-over-year to $243 million. For all of 2024, its total revenue and its subscription revenue jumped 33% and 55%, respectively.
And in Q1, its revenue soared 46% year-over-year to $317.6 million, while its bottom line, excluding certain items, jumped to $50.3 million from $35.9 million in Q1 of 2024.
More Positive Catalysts for CYBR
The company offers rather comprehensive IT security solutions, encompassing “privileged access for IT, workforce, machines, and…developers,” Cohen, its CEO, noted.
Suggesting that this type of comprehensive approach is becoming increasingly popular, Palo Alto (PANW) and CrowdStrike (CRWD) have adopted the strategy. Indeed, it makes sense that large companies would rather deal with one IT security company than have to draw up multiple contracts, make payments to multiple firms, make new arrangements with multiple vendors when they expand etc.
Meanwhile, Defense Secretary Pete Hegseth has identified “enhancing cybersecurity” as one of his top priorities. Since CYBR’s CyberArk Endpoint Privilege Manager and CyberArk Workforce Identity have obtained FedRAMP High authorization, the company can benefit from the Pentagon’s prioritization of cybersecurity under Hegseth.
Elevated Valuation Is Justified by Strong Growth and the High Likelihood of an Eventual Takeover
CYBR has a very high price-to-sales ratio of 15.9 times. But as I mentioned earlier, the elevated valuation can persist as long as it continues to grow so rapidly.
Further, as a relatively small cybersecurity company, there’s a strong chance that the firm will be acquired down the road. Many similar companies have been acquired at very high valuations in the last 20 years.
Recently, for example, another Israeli IT firm, Wiz was acquired by Alphabet (GOOG) for $32 billion. According to one estimate, the acquisition price represented “a staggering revenue-to-enterprise value multiple between 45x and 65x.”
So CYBR’s current valuation may actually eventually prove to be relatively low.
*This article is intended to be informational only; it is not financial advice.
