The Best and Worst Performing Security Stocks of 2018
A brutal 2018 that cut across a broad swath of Wall Street didn’t leave publicly-traded electronic security companies unscathed, despite overall industry growth.
In 2018, the United States economy continued to expand as unemployment fell to 3.9% and gross domestic product (GDP) expanded by an estimated 2.9%. Despite the positive economic performance during the year, the stock market experienced extreme volatility with asset prices climbing, falling dramatically and then rebounding.
- The broad-based S&P 500 index climbed by approximately 6.8% before falling 17.5% from its high and then rebounding 4.8% to close the year down 8.4%.
- The Dow Jones Industrial average climbed by 5.7%, dropped by 16.1% and then rose 4.4% to finish the year down 7.9%.
- The Nasdaq climbed by 13.6%, fell by 21.9% and then surged 6.4% to finish the year down 5.6%.
Reflecting a bearish sentiment, EBITDA (earnings before interest, taxes, depreciation and amortization) multiples — one of Wall Street’s favorite metrics of profitability — for all three indices also declined over the 12-month period:
- Dow Jones Industrial Average fell from 13x EBITDA to 11.1x EBITDA
- S&P 500 dipped from 12.8x to 11.1x EBITDA
- Nasdaq declined from 16x to 13.7x EBITDA
According to MarketWatch, the market seesaw reflected positive factors such as economic data and corporate earnings and negative factors such as concerns about potential inflation, trade policy uncertainties and geopolitical issues.
Against this macroeconomic backdrop, the physical security industry continued its growth. For the 12 months ending Sept. 30, 2018, the production value of physical security products grew by 8% to $31.55 billion.
Within the broader industry, market research firm Memoori describes an upward trend in key industry categories in its “Physical Security Business, 2018 to 2023” report (published Q4 2018): the video surveillance subsector grew by 8.7% to $17.4 billion; access control grew by 8% to $7.45 billion; and, intrusion alarms increased by 4.5% to $6.72 billion.
However, these positive industry growth figures were outweighed by the broader volatility in the markets resulting in an 11.26% decline in a representative index of 41 physical security stocks compiled by Capstone Headwaters (*).
Stock Performance Winners & Losers
The cybersecurity industry posted strong growth of 10.9% expanding globally from $137 billion to $152 billion in size, according to Statista. Cybersecurity stocks generally posted stronger gains with a representative index of 53 stocks increasing by 12.38%.
Despite the broader market volatility, a number of stocks in the physical and cybersecurity sectors outperformed the market including:
Alarm.com (Nasdaq: ALRM)
- 37.4% stock price increase
- Revenue increased 20.6% from $339 million in 2017 to an estimated $409 million in 2018
- EBITDA increase from $60.7 million in 2017 to an estimated $91 million in 2018
- Enterprise value/EBITDA multiple decreased slightly from 32.3x to 32.1x during the beginning of the year to the end of the year
Kratos Defense & Security Solutions (Nasdaq: KTOS)
- 33% stock price increase
- Revenue decreased from $752 million in 2017 to an estimated $642 million in 2018 as the company sold its Public Safety and Security division to Securitas for ~$70 million
- EBITDA increased from $41.4 million in 2017 to an estimated $58.3 million in 2018
- Enterprise value/EBITDA multiple decreased from 33.5x to 27x during the beginning of the year to the end of the year
NAPCO Security Technologies (Nasdaq: NSSC)
- 80% stock price increase
- Revenues grew by 6.3% to $93.9 million for the 12 months ending Sept. 30, 2018
- Enterprise value/EBITDA multiple increased 20.2x to 21.7x from the beginning of the year to the end of the year
Verint (Nasdaq: VRNT)
- 1.1% stock price increase
- Revenue increased by 6.9% from $1.06 billion to $1.13 billion
- EBITDA increased from $111.5 million in 2017 to an estimated $164.6 million in 2018
- Enterprise value/EBITDA multiple decreased from 32x to 19.1x
Identiv (Nasdaq: INVE)
- 7.8% stock price increase
- Revenue increased by 28% from $60.2 in 2017 to $77.2 million in 2018
- Enterprise value/revenue multiple decreased from 0.8x to 0.7x
Okta (Nasdaq: OKTA)
- 149% stock price increase
- Revenue increased by 59% to $364 million
- Enterprise value/revenue multiple increased from 10.3x (Jan. 31, 2018) to 18.6x (Oct. 31, 2018)
Fortinet (Nasdaq: FTNT)
- 61% stock price increase
- Revenue increased by 19.8% from $1.5 billion to $1.8 billion
- EBITDA increased from $167 million to $245 million
- Enterprise value/EBITDA multiple increased from 37.3x to 42.3x
SecureWorks (Nasdaq: SCWX)
- 90.4% stock price increase
- Revenue increased by 9.21% from $466 million to $508.9 million
- Enterprise value/revenue multiple increased from 1.3x to 2.5x
There were also examples of stocks in the security sector that underperformed the market, including the following:
Ascent Capital Group (Nasdaq: ASCMA)
- Stock price for the parent company of Brinks Home Security dropped from $11.49 to 39 cents
- Net losses increased by 66% from $107.6 million to a loss of $355 million
ADT (NYSE: ADT)
- 43% stock price decrease
- Revenue increased from $4.3 billion to $4.5 billion
- EBITDA increased from $2.2 billion to $2.4 billion
- Enterprise value/revenue decreased from 4.4x to 3.1x
- Enterprise value/EBITDA decreased from 8.4x to 6.2x
Hikvision (SSE: 002415.SZ)
- 37.5% stock price decrease
- Revenue increased by 22.4% from $6.2 billion to $7.6 billion
- EBITDA increased from $1.6 billion to $1.77 billion
- Enterprise value/EBITDA decreased from 36.9x to 19.6x
G4S PLC (OTCMKTS: GFSZY)
- 30.3% stock price decrease
- Revenue decreased from $10 billion to $9.5 billion
- EBITDA decreased from $762 million to $748 million
- Enterprise value/EBITDA increased from 8.8x to 9.1x
Anixter (NYSE: AXE)
- 28.5% stock price decrease
- Revenue increased from $7.9 billion to $8.4 billion
- EBITDA increased from $380 million to $394 million
- Enterprise value/EBITDA decreased from 10x to 7.6x
Control4 (Nasdaq: CTRL)
- 39.7% stock price decrease
- Revenue increased from $244.7 million to $268.7 million
- Enterprise value/revenue decreased from 2.9x to 1.4x
- Enterprise value/EBITDA decreased from 31.9x to 12.5x
F-Secure (HEL: FSC1V)
- 43.2% stock price decrease
- Revenue increased from $193.4 million to $206.6 million
- EBITDA decreased from $16.1 million to $12.6 million
- EV/EBITDA increased from 29.5x to 34.3x
Symantec (Nasdaq: SYMC)
- 32.7% stock price decrease
- Revenue decreased by 4.63% to $4.75 billion for the 12 months ending Sept. 30, 2018
- EV/EBITDA decreased from 30.1x to 16.7x
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