2 Top Cybersecurity Stocks Canadians Can Buy in 2022

Cybersecurity stocks such as Magnet Forensics and Check Point are well poised to help deliver outsized gains to investors in 2022 and beyond.

| More on:
Technology, internet and networking, security concept

Image source: Getty Images

While investors are sweating over the steep valuations of growth stocks, they can consider companies part of the cybersecurity vertical that are generally recession-proof. Despite an inflationary environment, enterprise spending on cybersecurity is expected to touch US$1.75 trillion between 2021 and 2025, up from just US$3.5 billion in 2004, according to a report from Cyber Security Ventures. 

The need to accelerate digital transformation processes, replacement of legacy systems, the shift towards cloud-based computing, and the transition towards a work-from-home model have acted as secular tailwinds for cybersecurity players such as Check Point (NASDAQ:CHKP) and Magnet Forensics (TSX:MAGT).

Let’s see why these top cybersecurity stocks should be part of your investment portfolio in 2022.

The bull case for Check Point

One of the larger players in the cloud security vertical, Check Point ended 2021 with US$2.17 billion in sales — an increase of 5% year over year. Comparatively, its adjusted earnings surged by 4% to US$7.02 per share in 2021.

Cloud security is a vertical where the security provider and the customer share responsibilities. The provider needs to ensure infrastructure is safeguarded while customers need to manage user access and account privileges.

In Q4 of 2021, Check Point increased sales by 6% to US$599 million, while adjusted earnings surged by 4% to US$2.25 per share. Its revenue in Q4 exceeded the company’s midpoint guidance by US$17 million, while EPS exceeded the high-end of its guidance.

Check Point attributed top-line growth to its subscription business, where sales were up 14% at US$204 million. In 2021, subscription revenue soared by 13% to US$755 million, accounting for more than a third of total sales.

Its deferred revenue was up 15% in Q4 at US$1.7 billion, which is a good indicator of subscription sales. Basically, deferred revenue is the income collected in advance for services delivered at a later date. Check Point’s widening base of subscribers will allow the company to create a stable revenue stream and derive cash flows across business cycles.

The bull case for Magnet Forensics

Valued at $1 billion by market cap, Magnet Forensics develops data analytics software used for digital forensic investigations to companies part of the public and private sectors. In Q3 of 2021, Magnet reported revenue of US$17.8 million — an increase of 44% year over year. It ended the quarter with a gross margin of 93%, allowing it to report a net income of US$2.2 million.

Magnet’s adjusted EBITDA also rose by 33% to US$4.6 million while annual recurring revenue rose by 48% to US$54 million. The company’s sales have grown from US$26.8 million in 2018 to US$51.2 million in 2020. Now, sales are forecast to touch US$87 million in 2021 and $113 million in 2022. 

We can see that Magnet is valued at a forward price-to-2022-sales multiple of 6.7 and a price-to-earnings multiple of 65, which is steep. But growth stocks command a premium due to which they remain vulnerable when markets turn bearish.

Magnet is a profitable company and has close to $150 million in cash due to the net proceeds from its IPO.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Check Point Software Technologies and Magnet Forensics Inc.

More on Tech Stocks

Growth from coins
Tech Stocks

2 Canadian Growth Stocks to Buy and 1 to Sell

The recent volatility in the stock market has created all kinds of opportunities for long-term investors.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

3 Cheap Tech Stocks to Buy Right Now

Given their long-term growth prospects and discounted stock prices, I am bullish on these tech stocks.

Read more »

Redwood trees stretch up to the sunlight.
Tech Stocks

These 3 Magnificent Stocks Keep Driving Higher

Constellation Software, Dollarama and another TSX stock have consistently generated positive investment returns. Here’s why they belong in your retirement…

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

Wanna Beat the Market? Try These 2 Tech Stocks That Look Undervalued Today

Here's why undervalued TSX stocks such as Vitalhub can help you generate outsized gains in the next 12 months.

Read more »

Target. Stand out from the crowd
Tech Stocks

2 Fintech Stocks I’d Buy and Hold Forever

High-growth fintech stocks such as Nu and Propel are positioned to deliver outsized gains to shareholders in 2024 and beyond.

Read more »

question marks written reminders tickets
Tech Stocks

Down by 31.43%: Is Lightspeed Stock a Buy After Earnings?

While its decline in share price might suggest the company isn’t doing well, the earnings report makes Lightspeed stock seem…

Read more »

Shopping and e-commerce
Tech Stocks

Is Shopify Stock a Buy Now?

Here's why Shopify (TSX:SHOP) ought to remain among the top growth stocks long-term investors want to own in this current…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Tech Stocks

Topicus Stock Jumps 16% on Killer Full-Year Earnings

Topicus (TSXV:TOI) reported strong earnings after revenues surged higher, and with a volatile market this is exactly what you want…

Read more »