These 2 FTSE 250 stocks are my tickets to a £200bn industry

Cybersecurity could be worth £200bn by 2024 and I’m considering adding exposure through a couple of FTSE 250 stocks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been getting increasingly anxious about my digital presence lately. I bank, shop, relax and work entirely online. My business bank account details are linked with an app I use on my smartphone that connects automatically to the WiFi at the local public library. It wouldn’t take much for someone to break in and get all my details. 

Personal and business data like this can be used to steal my identity and apply for loans that are never paid back, ruining my credit history. Or lock down the data on my business computer until I paid a ransom to retrieve it. All it would take is an ill-fated click on a malicious link in a seemingly innocuous email. 

That’s the threat we all live with in the digital age. As these attacks grow more common and sophisticated, cybersecurity firms have been creating solutions that could help ordinary people and small businesses mitigate the risk.  It’s an industry that could be worth as much $248.26bn (£200bn) by 2024, according to data published on Statista. 

Experts say demand for cybersecurity tools could expand at 11% every year for the next half-decade. That sounds to me like an attractive growth industry. Fortunately, there seem to be two tickets to this lucrative ride listed on the London Stock Exchange: 

Avast

With over 435 million users spread across the globe, antivirus maker Avast (LSE: AVST) is probably one of the biggest cybersecurity firms on the planet. The company’s primary focus is the consumer security market. It offers a free antivirus option that can be updated with better security features at a premium price. 

According to the company’s latest report, 95% of annual revenues are derived from consumers, with the rest originating from small and medium-sized businesses. Over the first half of 2019, billings, revenue and free cash flow were up 12.5%, 9.2% and 20% respectively. Meanwhile, net margin expanded to a hefty 34.7% this year. 

Despite those impressive figures, the stock seems to be flying under the radar at the moment. Avast shares trade at a forward-price-to-earnings ratio of just 13. There’s no doubt I’ll be watching this one closely.  

Sophos

Sophos Group (LSE: SOPH) is a considerably smaller company with a higher valuation than Avast. However, the company is focused on enterprise customers rather than the average consumer. 

Businesses, arguably, have more at stake than the average internet user. Medical records, trade secrets, client information and financial transactions all need to be protected with a higher degree of sophistication. This complexity makes enterprise security solutions more expensive to execute, but also more sticky. 

Sophos strikes long-term subscription contracts (average length of 26.4 months) with its clients and reported strong customer retention over the past year. However, Sophos lost money last year and swung to a tiny profit (net margin 4%) this year. 

After losing 40% of its value over the past 18 months, it could be argued that the stock is trading at a better valuation. However, a P/E ratio of 70 and razor-thin margins are still concerns for me. 

If the valuation improves, I could add Sophos alongside Avast to create a portfolio that adequately covers both the consumer and enterprise segments of the global cybersecurity market. 

Foolish takeaway

Cybersecurity is a quickly expanding and highly lucrative market. I’ll be monitoring Sophos and Avast closely for a chance to add exposure here.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

VisheshR has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »