CyberArk Software (NASDAQ) is a global cybersecurity company that develops, markets and sells solutions.

It is available in America, Europe, Asia, Middle East and the Middle East. CyberArk’s main focus is access management and identity-security solutions.

I am neutral on CYBR stock. (See Analysts’ Top Stocks on TipRanks)

These Macro Conditions Can Be Favorable

Security industry is currently in an exciting phase. Ransomware, ransomware and data breaches are all constant threats. Targets include schools, hospitals, pension plans and mom-and-pop businesses as well as large corporations.

Each year global damage is in excess of 100 billions and growing. Like most things in life, it is possible to prevent problems from happening. CyberArk’s identity security operations are conducted in this setting.

CyberArk has over 7,000 customers. This includes more than half of the Fortune 500. CyberArk has $315million in recurring revenue and is rapidly growing its subscription business. CyberArk switched from a licensing model in late 2020 to a subscription-based model. It is possible that this transition was too late.

There has been a tremendous increase in competition within the cybersecurity sector. CrowdStrike (CRWD), Zscaler, and Okta are all cloud-based SaaS businesses that have taken over the cybersecurity industry. SentinelOne(S) and IronNet, both newcomers to the industry (IRNT), also hold huge potential. The businesses started as SaaS and now have an advantage over CyberArk’s subscription model.

Subscription revenue is a good growth area, but it only contributed 65% to total revenues for Q2 2021. Only 5.9% growth is expected for total revenues next year. This is significantly lower than the growth of revenues in some other industries, which can grow by more than 50% annually.

Valuation May Suffer

A lack of growth could cause valuations to fall in the future.

CyberArk trades at near-record highs. Its price-to-sales ratio (PS) is currently 13.9x. It is within the acceptable range of a SaaS company that’s growing.

This is due to the expected slowing growth of total revenue for next year. A PEG ratio of more than 1 is a result of the lackluster growth. A PEG ratio higher than 1 is considered to be unfavorable.

The company fails to pass the SaaS Rule of 40. It is a dangerous area, since competition keeps adding customers and increasing recurring revenue at an alarming rate. To be a significant player in this sector, management will have to perform impeccably.

Wall Street’s Take

Wall Street analysts believe CYBR stock is a strong buy. This rating was based on two Hold and 10 Buy recommendations.

The average CyberArk price target of $180.91 implies 7.3% upside potential.

CyberArk: Summary

CyberArk successfully switched from a license model to a subscription one.

The annual recurring revenues have been increasing beautifully to this effect. Problem is, the decision may not have been made in time.

There will likely be some short- to medium-term headwinds. There are favorable macro conditions in cybersecurity. In recent years, this has led to a lot of competitors to IPO. While CyberArk is transitioning, these entrants started with subscription models and are now making big.

This is an important time for investors to remain cautious as stock trading nears all-time highs.

Disclosure: Bradley Guichard was a shareholder in the securities discussed in this article at publication.

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