Throughout the past week, two Las Vegas casinos, MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR), have had an ongoing cyberattack. These events have once again highlighted the enormous opportunity cybersecurity stocks have. More attacks like this will happen in the future.

Hackers are becoming more sophisticated. In addition, they are posing more disruptions to businesses. As the latest casino hack has shown, companies are losing millions from downtime and ransom demands.

For now, it’s unclear how the latest casino hack will be resolved. Overall, this crisis will only emphasize the need for increased cyber spending. Indeed, industry research predicts that investments in cyber defense capabilities will grow. For instance, Statista forecasts that the global cybersecurity market will increase to $538.3 billion by 2030.

Besides the expanding total addressable market, the new Securities and Exchange Commission rules on cybersecurity will make public companies prioritize this area. Ultimately, the increase in spending will be a boon for cybersecurity stocks. Innovative cloud-based players that are also leveraging artificial intelligence will do well.

Cybersecurity Stocks: SentinelOne (S)

With rumors swirling about a potential buyout, SentinelOne (NYSE:S) is one of the cybersecurity stocks to keep an eye on. On August 21, Reuters reported that the firm was exploring strategic options, including a sale. The firm has hired Qatalyst Partners for advisory services related to a potential takeover.

A sale could be on the cards, considering that even the CEO believes the stock is undervalued. In a recent CNBC interview, CEO Tomer Weingarten stated, “Obviously, our valuation is a bit depressed, and we are an undervalued asset.”

Guess what. There is some truth to the statement. Notably, the stock trades more than 50% below its June 2021 IPO price of $35 per share. The decline has happened despite the company posting one of the highest growth rates in the sector.

The company’s AI-powered cybersecurity platform has been in huge demand. Enterprise customers use its autonomous defense systems for security and self-healing capabilities across attack vectors. As a result, revenue growth has been impressive, with revenues growing more than 100% in each of the last three fiscal years.

Yet, despite the stellar growth, the firm trades at a lower valuation than slower-growing peers. Currently, the trailing 12-month EV/Sales multiple is eight. For a business that increased revenues by 45% year-over-year in the latest quarter, that’s too cheap.

The CEO is right; the stock is undervalued. Either the market will recognize the disconnect and rerate the stock higher, or a buyer will swoop in at a substantial premium.

CrowdStrike (CRWD)

CrowdStrike (NASDAQ:CRWD) is one of the fastest-growing cybersecurity stocks. It’s a cloud-native security platform that is helping customers protect their data and workloads on the cloud. As migration to the cloud continues, it will see more demand for its products.

As the latest quarterly results showed, CrowdStrike has found the perfect growth algorithm. It’s convincing customers to subscribe to more modules on its Falcon platform.

The strategy is working perfectly. Total revenues for the second quarter of fiscal year 2024 were $731.6 million, a 37% increase. Module adoption rates grew to 24%, 41% and 63% for customers with seven or more, six or more and five or more, respectively.

Not only is the company growing revenues at an impressive rate, but it is also delivering profits. It achieved GAAP profitability for the second consecutive quarter. Free cash flow grew to $188 million from $135 million the previous year.

CrowdStrike is well positioned to capitalize as chief technology and security officers invest heavily in cybersecurity. It’s a leader with superior technology, according to firms like Gartner and Forrester. For instance, in August, Frost & Sullivan named it a Cloud Workload Protection Platform leader.

With the SEC’s recent cybersecurity disclosure rules, spending is set to increase. Although the stock has appreciated year-to-date, it still has room to run. The average price target of $182 from TipRanks analysts represents more than 10% upside.

Zscaler (ZS)

Over the last decade, Zscaler (NASDAQ:ZS) has revolutionized enterprise security. It has been displacing traditional security technologies like cloud access security brokers (CASBs) and secure web gateways. Due to the significant cost savings it delivers, the firm has enjoyed tremendous customer growth. Today, it counts over 40% of Fortune 500 companies as customers.

The Zscaler Internet Access platform has been the growth driver supporting secure and fast access to the internet. The firm has added more products, such as Zscaler Private Access for workloads (ZPA). While ZPA is still a small business, it has a faster growth rate and sales increased 57% YOY in 2022.

Zscaler will continue to disrupt the security market with its leading zero-trust solutions. Specifically, it is targeting legacy VPN firewalls for replacement with its superior technology. That could be a massive tailwind throughout the next decade.

Given the solid growth prospects, TipRanks analysts believe the company is one of the best cybersecurity stocks. Thus, they remain bullish and see a 17% upside from current levels.

After the recent earnings report, there were several positive analyst notes. Wedbush Dan Ives raised the price target to $185, citing continued success in cloud workload protection and zero-trust SaaS applications. BMO’s Keith Bachman also raised the target, citing health revenue growth and an expanding total addressable market.

Zscaler is keen on expanding the zero-trust architecture to users and workloads everywhere. As large projects put on hold get back on, revenue will see a resurgence.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

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