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Cybersecurity Stocks Are Poised for Decades of Growth

Cybersecurity Stocks Are Poised for Decades of Growth

Cybersecurity stocks aren’t a big deal to many investors, and it may not seem like one of the more exciting industries out there.

But cybersecurity is really the gatekeeper of all technology.

Without secure devices and networks, all of the mega trends and growth opportunities that investors are excited about can’t reach their full potential.

In today’s Market Insights video, I talk about why I think the cybersecurity industry will be a great place for investors in the years to come.

(If you’d prefer to read a transcript instead, click here.)

Cybersecurity is poised for decades of inevitable growth, but it’s not really front of mind for most investors unless you work in that industry. You’re not thinking about it every day. It’s not super exciting.

But cybersecurity is really the gatekeeper of all technology.

Without it, all these mega trends and these technologies that investors are actually excited about, well, they won’t really reach their full potential.

And you can see in this chart that global cybercrime damage is expected to reach $10.5 trillion by 2025, up from the $6 trillion estimate for 2021.

cybercrime damage futures chart

(Sources: Cybersecurity Ventures and ResearchAndMarkets.)

And those small orange bars there, those are the forecasts for the global cybersecurity industry’s revenue for each year, now at 3.5% of the damages that are expected to occur.

It’s a drop in the bucket. And there’s a ton of upside for revenues to catch up as cybersecurity companies seek to stop these damages from growing and even decrease them.

As complex technologies reach the market, cybersecurity will become even more scrutinized. Governments aren’t going to approve the use of things like self-driving vehicles on a wide scale unless it can be proven that cybersecurity protocols are locked in.

The immediate catalyst to cybersecurity, however, is the work-from-home shift that we’re seeing across the board. So, businesses, as we’re seeing, are letting people work from home, either all the time or a lot more than they were before the COVID-19 pandemic.

There are more endpoints to protect with more connections outside of places of employment, and that digital transformation that these companies are going through is going to require a lot more spending on cybersecurity.

And companies are already worried about that. IBM did a case study in 2020 where it asked a bunch of companies questions about remote work and cybersecurity. And 76% of those companies said they expect the time to increase for detection and containment of cyber threats, and 70% said they expect that the actual damages in terms of cost will increase.

Cybercrime will likely become a leading form of terrorism, if it’s not already. If an entity decides to make a malicious attack on a power grid or telecommunication system, it can really take that area back into the Stone Age and disrupt life more than most people can imagine.

Health care institutions are also a frequent target. And as you can see in this chart, they also command the highest average total cost of a data breach by industry at $7.1 million. That’s above the global average, which is $3.9 million.

cost of data breach by industry

(Source: IBM.)

It’s safe to say that businesses are unprepared. It took, on average, 270 days to detect a data breach in 2020. And after it was detected, it took an average of 280 days to actually get it fully contained.

I think this comes back to businesses neglecting their spending on cybersecurity and not prioritizing it like they should. Even in 2020, only 21% of businesses had a fully deployed security automation system, up from 15% in 2018. And there are definitely benefits, and it’s moving the needle for the companies that are deploying that cybersecurity.

You can see in this chart that there’s a $3.5 million difference in terms of cost savings for the businesses that have a fully deployed security automation system, and that’s up from $1.5 million in 2018.

cost data breach security automation chart

(Source: IBM.)

So, it’s a huge benefit for these companies, and that’s great for cybersecurity across the board.

Now, cybersecurity stocks overall have really seen their prices beaten up over the last month or two. And that’s kind of in line with tech stocks in general.

In general, cybersecurity companies have actually done pretty well in 2020, and they’re providing favorable guidance for 2021. Across the board, that’s the case. And businesses also cut spending last year, so it’s good to see that cybersecurity spending was prioritized during that time.

Now, stocks have typically tracked their 12-month forward earnings estimates. So, what analysts expect their earnings to be for the next 12 months.

You can see in this chart that it’s almost been to a T.

cybersecurity stock pullback 2021 graph

(Source: Bloomberg.)

These earnings estimates are less smooth, obviously, because they’re updated less frequently. But the stocks have pulled back without much movement on the earnings estimates. So, I think that it’s a good time to buy cybersecurity stocks while they’re cheap.

Regards,

Autonomous delivery will change the dynamic of the food industry, as well as boost U.S. productivity and quality of life over the coming decade.

Steve Fernandez

Research Analyst, Automatic Fortunes

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