The global cybersecurity market is expected to grow 12.5% every year from 2021 to 2028. This makes cybersecurity shares potentially lucrative investments. I think picking the best ones could lead to huge returns for my portfolio.
A top UK cybersecurity share
Kape Technologies (LSE: KAPE) is a UK-listed cybersecurity company with products focused on privacy and digital security. It’s growing strongly. In 2020, revenues increased 85% to $122.2m (£87.88m). It’s little surprise then that the share price is also doing very well. Shares in Kape Technologies have more or less doubled over the last year.
Analysts at Progressive Equity Research expect revenue growth to remain very strong, while the price-to-earnings ratio will fall over the next few years due to strong earnings. The analysts expect revenues in 2021 to be £200m and £250m in 2022. For context, revenue in 2018 was £52.1m. It’s not all about the top line though. In 2021, profit before tax is expected to be £64.3m.
Demand for VPNs, privacy on the Internet, and cybersecurity will only grow as the world moves increasingly online. I think these trends will underpin further growth in the Kape Technologies share price. The biggest risk is competition, along with a high P/E that means any future underperformance could see it heavily punished.
A cybersecurity expert
NCC Group (LSE: NCC) is just a little bit bigger than Kape when it comes to market capitalisation. It’s closing on becoming a £1bn company. The cybersecurity group upgraded its full-year expectations earlier this year following better-than-expected trading towards the end of the year.
It expects revenue for 2021 to be slightly ahead of the prior year, while adjusted earnings before interest and tax are set to be towards the higher end of consensus expectations of between £33.7m and £36.2m.
NCC Group provides assurance services to clients all over the world. Increasing regulation, along with sophisticated hacking, including by state-sponsored hackers, means this work won’t dry up anytime soon.
The business has a forward P/E of 26 and a PEG of only one. These both make it look relatively good value for a business that is future proof and able to grow revenue.
The downside is profits have been a bit lumpier and the business is more people reliant than product-focused cyber companies. It has huge potential, but between the UK companies, I prefer Kape Technologies. Indeed, I held shares in Kape until recently, selling to lock in profits. If the share price dips I’ll consider buying back in given the huge growth potential.
A US option
In the US, I think Crowdstrike is right up there among the best of the cybersecurity companies, so I’m very tempted to add it to my portfolio. There are a number of other US-listed options like Palo Alto Networks and Fortinet. They are all potentially very financially rewarding, but I like Crowdstrike because its share price has serious momentum, well outperforming the S&P 500.
It’s innovative, growing fast, and about to enter the Nasdaq-100 Index. The potential downside is its a very crowded market. Given the growth in the industry, that’s only likely to increase in the future, which may limit Crowdstrike’s growth or margins.
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Andy Ross owns no share mentioned. The Motley Fool UK owns shares of and has recommended CrowdStrike Holdings, Inc. The Motley Fool UK has recommended NCC. 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.