Tenable (NASDAQ:TENB) is a cybersecurity company with a focus on exposure management that it serves well over 40,000 customers globally through its security platform, including 65% of Fortune 500 companies.
Today, let’s take a look at Tenable to see if it’s a stock to buy, hold or sell in the current market.
Tenable’s Revenue Growth and Profitability
Tenable has produced consistently positive revenue growth since it went public in 2018. Revenues are up year-over-year in every quarter in the company’s history, resulting in full-year revenues roughly doubling over the past 5 years alone.
With that said, the revenue growth rate has slowed down quite a lot in the past couple of years. Going back to 2022, Tenable’s revenues were climbing at rates in the mid-to-high 20% range. By 2023, growth had slumped off to the mid-to-high teens, and 2024 saw it fall even more to the range of 10-14%.
At this point, year-over-year revenue growth rate has declined in each of the last six quarters. So, while Tenable is still growing respectably, the pace seems to be losing steam.
This slowing top line growth has coincided with a long path to GAAP profitability, which management finally announced for the first time in Q4. Although the move to positive net income is obviously good for shareholders, the fact that it took so long and that sales growth has slowed to such an extent is concerning for prospective buyers sitting on the sidelines.
2024 was, however, a good year for Tenable overall with management reporting full-year revenue growth of 13% to $900 million and a non-GAAP net income of $158.6 million. In the fourth quarter, it also added 135 new customers contributing $100,000 or more to annual revenues.
Free cash flows for the year were pretty solid too, reaching $237.8 million, up from $175.4 million the year before.
Where Does Tenable Go From Here?
In 2025, the leadership team expects to keep posting positive revenue growth, albeit at a slower rate.
Management’s guidance forecasts full-year revenues of $971-$981 million. At the midpoint of this range, revenue would increase by about 8.4% from the 2024 total. Billings are also expected to exceed the $1 billion mark this year.
While Tenable hasn’t issued guidance for GAAP net income, non-GAAP net income is expected to fall in the range of $189-$199 million, or 22.3% growth, which could be enough to put further upward pressure on shares.
Over the next 3-5 years, Tenable’s earnings per share are expected to keep rising at a rate of over 30% annually. Such rapid growth would very likely send share prices higher, though the team may struggle to deliver this if revenue growth rates continue to lag. One thing that should support higher EPS over time is the ongoing Tenable’s share buyback program. In 2024, the company repurchased about $100 million worth of its own shares.
Can Tenable Fend Off Competition?
Although its a relatively small company by cybersecurity standards with a market cap of under $5 billion, Tenable has a bit of a moat within its own niche. For six consecutive years, it has held a leading market share in the device vulnerability management market.
In part, this is the result of Tenable’s active outreach to managed security service providers and its integration of cutting-edge AI features to help its users identify and manage threats.
Tenable also has considerable room for growth as the number of IoT devices, for instance, is expected to more than double to 40 billion by the end of the decade. This, in turn, will very likely increase demand for the device security services that companies like Tenable provide.
With all of this said, it’s important to recognize that Tenable is still a relatively small fish in an increasingly large and competitive pond. The opportunities to balloon in size in cybersecurity over the coming years will likely make the competition for market share intense, and Tenable could find itself up against larger, better-capitalized businesses.
Is Tenable Stock Undervalued?
Unlike many tech and cybersecurity companies, Tenable trades at fairly reasonable valuation multiples. TENB is priced at 4.8x sales and 10.9x book, neither of which is outrageous in the cybersecurity world by any means. The stock also carries a 20.8x multiplier to operating cash flow.
Analysts are also quite bullish on TENB’s near-term price performance but Tenable could prove to be a bit of a value trap. With revenue growth cooling and the company only having very recently achieved a thin level of GAAP profitability, the rapid upward price action predicted by analyst forecasts may fail to materialize.
While it appears quite unlikely that TENB’s share prices would collapse from this point forward, the stock could stagnate somewhat if earnings don’t continue to grow as expected.
Is Tenable a Buy, Sell or Hold?
Tenable is a strong Buy according to the 18 analysts who cover the stock and have a $48.56 per share consensus price target on it, which implies as much as 35.2% upside from present levels.
At the moment, Tenable stands out as a decent stock to hold, but the investment thesis behind it doesn’t seem quite strong enough to make it as compelling as analysts seem to infer. Tenable is still a fairly small company, and its slowing revenue growth rates and extremely new profitability raise some concerns about how much and how quickly it can grow its earnings going forward.
Future quarters will likely bring some clarity to these questions, but for now TENB seems better to approach as a wait-and-see stock.
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.
