How High Will CyberArk Stock Go?

CyberArk Software Ltd. (NASDAQ:CYBR) has attracted a lot of attention as an up-and-coming cybersecurity play with the share price soaring by 60% over the past twelve months alone.

The software firm provides a comprehensive identity security portfolio that is based on something called Privilege Access Management, or PAM. The company’s offering in this arena is called the CyberArk Blueprint and can be used to create a highly personalized security roadmap.

So far, the product-market fit has been stellar and led to a massive market capitalization of $10.3 billion. This is largely due to the enterprise’s position as a leader in the PAM market.

But will the good news keep on coming for shareholders?

CyberArk Is a Category Leader

With more than 8,000 customers across 110 countries, CyberArk has firmly established itself as a category leader.

Even more laudable is the fact that more than 50% of the Fortune 500 companies and more than 35% of the Global 2000 companies rely on CyberArk to secure their valuable assets.

The company claims to have a $50 billion total addressable market and has already reported $774 million in annual recurring revenue.

What makes the company attractive to shareholders is the fact that the top line performance is not reliant on one-off sales but rather 90% of it stems from recurring revenues, which also underscores the current demand for CyberArk’s solutions.

Another star on CyberArk’s resume is that it was named as a leader once again in Gartner’s Magic Quadrant for PAM. The reasoning for this stems from the platform’s reach and ability to protect information on-premises, on the cloud, and anywhere in between.

Sales Growth Continues To Stun Investors

Since 2015, the company’s annual top line has been steadily growing, which highlights the growing popularity of its solutions. As of 2023, CyberArk’s revenue stands at $751.89 million, reflecting a growth of 27.1% from the prior year.

The revenue growth rate accelerated between 2021 and 2022. Annual recurring revenue, another important metric, grew by 36% to $774 million.  As of right now, the top line has not shown signs of weakness but what about the all-important bottom line?

Profitability hasn’t been as impressive. On a GAAP basis, CyberArk has been posting a net loss annually since 2020. This was exacerbated in 2022 when the net loss reached $130.37 million for the year. Last year, it improved somewhat to $66.50 million.

On an adjusted basis, net income has yet to achieve pre-pandemic level highs. In 2022, the figure turned decidedly negative but the company shrugged off losses and posted a non-GAAP net income of $52 million last year.

CyberArk is attempting to pivot toward a subscription-based business model, which is why it is encouraging to see that this revenue made up about 63% of its total sales in 2023 from just 50% in 2022. This strategic pivot is likely to help the company further increase recurring revenues.

The company’s SaaS solutions adoption is also picking up steam, as reflected by 25% growth in short-term deferred revenue. CyberArk expects a 22% to 24% increase in revenue and a 25% to 27% growth in ARR this year, marginally below last year’s growth.

How High Will CyberArk Stock Go?

The consensus price target among analysts is for CyberArk stock to rise another 22% to $298.15 per share.

It’s clear given the customer adoption rates across so many Fortune 500 companies that the company possesses a competitive advantage in the highly lucrative cybersecurity space.

As customers counts have grown, so too have sales been on a tear while profitability has lagged. That may be less of a concern than some value investors want to admit, though, because it may well signal that management has sacrificed growth over bottom line earnings per share for now. 

If the leadership team understands the lifetime value of their customers and the recurring nature of revenues is sticky, they are likely to have concluded that winning market share is more important now than producing attractive profits for shareholders. Or in other words, they are willing to report underwhelming profits now in order to generate outsized profits later.

Other attractive aspects of the company now include the high levels of cash on the balance sheet, particularly when compared to debt levels. With $440 million of liquid cash and $638 million in short-term investments, CyberArk is well-positioned to further fuel its growth endeavors.

Gross margins are also astonishingly high, coming in at over 80% in the most recent quarter, and that is a climb from the year ago quarter of 77.8%. It’s clear that management is executing brilliantly.

The impressive fundamentals have not only impressed analysts based on their price targets but 21 of the 29 analysts covering the stock have also increased their earnings estimates for the upcoming quarter.

All in all, CyberArk is a stock that cannot be ignored and appears well-positioned to deliver solid returns to investors over the coming decade. It is notoriously volatile however so perhaps the best approach is a dollar-cost averaging one to smooth the undulations and manage the risk more appropriately than an all-in bet at one time.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.