The Best Internet Security Stock
There may not have been a worst time in the entire history of our country for DraftKings (DKNG) to IPO.
The rate of technological innovation in the last decade or so has been rapid.
As only a few examples, 10 years go none of the following companies existed.
- Zoom – video conference technology
- Lyft – car transportation/travel
- Juul – e-cigarettes
- Door Dash – Food delivery
- Instacart – Grocery delivery
- Robinhood –Stock trading
- Instagram – Social network
These companies are called “Tech Unicorns.” And they’ve come on the scene in the last decade. Took over their industries. And transformed the world.
EDITOR’S NOTE – The term Tech Unicorn means a tech company was founded in the 2000’s+ and then grew to a $1+ billion valuation.
You no longer must leave your house to interact with people around the world in seconds.
You no longer must go to the grocery store and deal with lines and rude people.
And you can summon a car to take you places in seconds on your phone.
Most of this was unthinkable 10 years ago.
But now they’re part of our everyday lives.
And they’re becoming even more important as we’re locked in our houses away from our friends and family during these coronavirus times, we’re now living in.
In the coming years technology will change even faster with the implementation of The Internet of Things.
The Internet of Things is a time when almost everything we interact with daily will have microchips and sensors in it.
These sensors and chips will spit out data to us to help us improve potentially every aspect of our lives.
From helping get rid of rush hour traffic.
To helping us spot a health issue before it causes major problems in our bodies.
To spotting potential pandemics before they spread around the globe.
To making sure our food is fresh.
The Internet of Things will hook almost everything in our lives to the internet.
These will change us and our lives in both positive and negative ways.
The Internet of Things is already being built. But it will accelerate even more because of our increasing reliance on technology in these coronavirus and social distancing times we’re dealing with now.
In the coming years and decades there will be many stocks that turn into huge winners from the Internet of Things.
But I don’t recommend you invest in smaller Tech Unicorns in the hopes of catching the ride up.
Not because some of them won’t succeed massively.
But because I think it will be almost impossible to spot the winners and invest in them before they skyrocket. While also avoiding the ones that fail miserably and go bankrupt.
I want to bet on solid companies over the long term… Ones that have solid balance sheets and are profitable today.
Not ones “hoping” to earn profits at some undetermined time in the future.
Today I want to show you one stock that will benefit enormously from the Internet of Things… While also being a great company now.
Why Qualys Is One Of The Best Internet Security Stocks
One area in the Internet of Things most forget to think about it the security required for all these systems to keep running without getting hacked.
It seems like every week you hear about a major corporation getting hacked…
Last week it was Twitter.
And before them it was…
- Quest Diagnostics
These are only a few examples of recent hacking intrusions into companies.
And we’re still at the beginning of the Internet of Things.
Imagine when everything from your fridge, to your car, to streetlights, to shoes… Is on the internet…
The potential for hacking is enormous already and its growing exponentially every day as more and more devices are hooked to the internet.
This is where cybersecurity company Qualys (QLYS) comes in.
Qualys is a $4.4 billion company that was founded in 1999.
It provides cloud-based security solutions to large corporations, governments, and small and medium sized businesses.
Some of its clients and partners are as follows…
- Deutsche Telekom
- Tata Communications
These are some of the largest corporations in the world when it comes to communication, finance, and technology… All of which require the kinds of internet security solutions Qualys provides.
Another benefit to Qualys is that by the end of 2020 worldwide spending on internet security solutions is expected to reach $124 billion.
And by 2026 internet security spending is projected to reach $270 billion worldwide.
Qualys is one of the largest cloud-based security solution providers so they’ll be one of the companies to benefit the most in the internet security industry from the Internet of Things.
Because of its position as a leader in this arena this allows it to produce huge profits and cash flow…
Over the last 5 years its average operating profit average 17.4% per year.
I look for any company to produce above 10% margins on a consistent basis to consider as an investment.
And in the last 5 years its FCF/Sales margin averaged 31.8% every year in this time.
On this metric I look for anything above 5% on a consistent basis.
Both metrics show that not only does it earn huge profits from its operations. But also, that it has more than enough money to reinvest in R&D to build out the things necessary to take advantage of the new technologies to continue dominating the Internet of Things.
Qualys is an amazing company that will benefit enormously in the years to come… But it does have one problem right now… Its overvalued.
Its current P/E is 63.2.
Its current P/CF is 23.2.
And its current forward P/E is 43.6.
I consider buying companies that have ratios below 20 on all these, so for now I recommend putting Qualys on your watchlist and buying it when it’s cheaper.
Wait and be patient to buy its stock to reap the full rewards of owning its shares.
Qualys is a fantastic company.
It’s a leader in its industry.
It earns huge profits and cash flows.
And it will benefit enormously from the Internet of Things requiring far more and far better internet security solutions to thwart hackers.
If you’re looking for a great Internet of Things and internet security stock to own don’t look to buy one of the tiny companies and hope you get a tech unicorn… Yes, some of them will explode to huge success in time. But many others will implode and go bankrupt.
It will be near impossible to tell which is which in the coming years.
Be patient and wait until a company like Qualys “goes on sale” and becomes more fairly valued to buy its stock.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.