The Best and Worst Performing Security Stocks of 2020

Despite a positive industry outlook at the conclusion of 2019, pandemic-related repercussions threatened growth projections and were poised to disrupt overall market growth.

However, the security industry proved itself resilient across its various sectors — most notably, companies in the cybersecurity sector which delivered solutions in the emerging Cloud security space, and those in the physical security sector which embraced increasing demands for data security and home security systems.

Even with the industry’s ability to withstand pandemic induced challenges, certain segments did not go completely unscathed. Though the physical security segment was resilient in residential markets, it experienced relative setbacks with commercial customers as economic uncertainties resulted in the delay of new projects and initiatives.

In contrast, the cybersecurity market was propelled forward by increasing vulnerabilities and an expanding attack surface facilitated by a substantial shift to remote work and heightened migration to Cloud-based applications.

Organizations are faced with the challenge of securing data and communications outside of on-premise systems, while cyber criminals have leveraged the situation to infiltrate networks and expose vulnerable systems that lack proper defense capabilities.

These factors have converged to attract significant investor activity in various sub-segments including managed security service providers (MSSPs) and security access service edge (SASE), while also yielding innovations in 5G- and IoT-driven security solutions.

More broadly, despite economic uncertainties and challenges, the global stock market realized an average total return of 22.4% as detailed in the following:

▶The S&P 500 index closed the year with a 16.3% gain compared with the previous year return of 28.9%.

▶The Dow Jones Industrial Average concluded 2020 with a return of 7.2% compared with a prior year gain of 22.3%.

▶The Nasdaq Composite Index outperformed a 2019 return of 35.2% with 2020 gains of 43.6%.

Cybersecurity stocks, as represented by the First Trust Nasdaq Cybersecurity (CIBR) and HACK exchange-traded funds (ETFs), outperformed the broader market with total returns of 30.7% and 23.2%, respectively.

Concurrently, physical security market players such as Alarm.com and Verint witnessed respective total returns of 140.3% and 16.3%.

Supportive evidence suggesting that investor sentiment remains positive is exhibited in the S&P 500 EV (enterprise value)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiple which improved from 14.1x to 17.1x.

Comparatively, the average multiple for physical security companies increased from 16.3x to 26.4x, while cybersecurity multiples increased to an average 34.3x from the prior year average of 26.5x.

Among the various physical security segments — alarm monitoring, access control, systems integration and video surveillance — access control and systems integration accounted for the highest EV-to-EBITDA multiples at a respective 14.5x and 15.2x.

Key drivers include an uptick in ransomware incidents and consequent increased levels of concern, alongside the rapid adoption of mobile access control and the incorporation of artificial intelligence (AI) and machine learning for automatic anomaly detection.

Throughout 2020, M&A activity remained strong as small to large enterprise players across a wide variety of sub-segments were highly acquisitive with intentions to broaden service offerings and strengthen core capabilities to meet increasing customer demands for comprehensive platforms.

Industry M&A activity outpaced 2019 levels, with strategic acquisitions accounting for more than 70% of total transactions.

Projected market growth — with the cybersecurity market projected to grow from a value of $173 billion in 2020 to $270 billion in 2026, and the physical security market projected to climb from $110 billion to $171 billion by 2027 — combined with five-year spending forecasts at both the government and enterprise level in excess of $1 trillion, the industry is primed for expansion and innovation.

Publicity surrounding recent largescale security breaches and the resulting impacts has forced organizations to move security requirements to the forefront of budgeting and planning discussions.

A representative index of 32 physical security stocks compiled by Capstone Headwaters experienced an average growth of 17.8% in 2020. An index of 52 cybersecurity stocks increased 43.2% in the same period.

Following is a sampling of some of the strongest and weakest performing stocks in the physical and cybersecurity arenas in 2020.

Stock Performances

Physical Security Strong Performers

Alarm.com (Nasdaq: ALRM)

• 8% stock price increase.
• Revenue increased by 25.3% from $473.3 million to $592.9 million over the last 12-month (LTM) period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 24.4x to 48.4x for the 12 months ending Dec. 31.

Hikvision (SZSE: 002415)

• 58% stock price increase.
• Revenue increased by 7.1% from $8.6 billion to $9.3 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 22.7x to 30.4x for the 12 months ending Dec. 31.

Kratos Defense & Security (Nasdaq: KTOS)

• 3% stock price increase.
• Revenue increased by 4.2% from $696.8 million to $726.4 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 28.7x to 49.4x for the 12 months ending Dec. 31.

Identiv (Nasdaq: INVE)

• 7% stock price increase.
• Revenue decreased by 5.8% from $86.1 million to $81.1 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 13.6x to 212.1x for the 12 months ending Dec. 31.

TagMaster AB (OM: TAGM B)

• 36% stock price increase.
• Revenue increased by 32.7% from $27.6 million to $36.7 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple decreased from 58.4x to 22.2x for the 12 months ending Dec. 31.

Verint Systems (Nasdaq: VRNT)

• 3% stock price increase.
• Revenue decreased by 2.4% from $1.29 billion to $1.26 billion over the LTM period ending Oct. 31.
• Enterprise value-to-EBITDA multiple increased from 19.5x to 221.7x for the 12 months ending Dec. 31.

Cybersecurity Strong Performers

Cloudflare (NYSE: NET)

• 4% stock price increase.
• Revenue increased by 50.5% from $258.6 million to $389.1 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple increased from 17.3x to 58.4x for the 12 months ending Dec. 31.

ZScaler (Nasdaq: ZS)

• 5% stock price increase.
• Revenue increased by 44.2% from $333.1 million to $480.3 million over the LTM period ending Oct. 31.
• Enterprise value-to-revenue multiple increased from 16.8x to 54.8x for the 12 months ending Dec. 31.

CrowdStrike Holdings (Nasdaq: CRWD)

• 7% stock price increase.
• Revenue increased by 85.9% from $409.8 million to $761.6 million over the LTM period ending Oct. 31.
• Enterprise value-to-revenue multiple increased from 23x to 60.2x for the 12 months ending Dec. 31.

SailPoint Technologies Holdings (NYSE: SAIL)

• 6% stock price increase.
• Revenue increased by 25.3% from $280.1 million to $350.9 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 109.7x to 122.8x for the 12 months ending Dec. 31.

Tenable Holdings (Nasdaq: TENB)

• 1% stock price increase.
• Revenue increased by 26% from $332.8 million to $419.2 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple increased from 6.3x to 12.4x for the 12 months ending Dec. 31.

Varonis Systems (Nasdaq: VRNS)

• 5% stock price increase.
• Revenue increased by 0.3% from $269.2 million to $270.1 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple increased from 8.6x to 19x for the 12 months ending Dec. 31.

Everbridge (Nasdaq: EVBG)

• 9% stock price increase.
• Revenue increased by 36.1% from $185.6 million to $252.6 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple increased from 13.8x to 20.6x for the 12 months ending Dec. 31.

Rapid7 (Nasdaq: RPD)

• 9% stock price increase.
• Revenue increased by 28.3% from $304.1 million to $390 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple increased from 9.1x to 12.3x for the 12 months ending Dec. 31.

Qualys (Nasdaq: QLYS)

• 2% stock price increase.
• Revenue increased by 13.4% from $311.1 million to $352.8 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 27.6x to 31.2x for the 12 months ending Dec. 31.

Fortinet (Nasdaq: FTNT)

• 1% stock price increase.
• Revenue increased by 19.8% from $2.1 billion to $2.5 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 14.8x to 42.4x for the 12 months ending Dec. 31.

Physical Security Weaker Performers

Synectics (AIM: SNX)

• 29% stock price decrease.
• Revenue declined by 17.3% from $95.2 million to $78.8 million over the LTM period ending May 31.
• Enterprise value-to-EBITDA multiple increased from 6.6x to 25x for the 12 months ending Dec. 31.

Brinks Co. (NYSE: BCO)

• 6% stock price decrease.
• Revenue declined by 1.4% from $3.7 billion to $3.6 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from 11.9x to 12.1x for the 12 months ending Dec. 31.

FLIR Systems (Nasdaq: FLIR)

• 8% stock price decrease.
• Revenue increased by 2.3% from $1.8 billion to $1.9 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple decreased from 17.6x to 14.1x for the 12 months ending Dec. 31.

Napco Security Technologies (Nasdaq: NSSC)

• 8% stock price decrease.
• Revenue declined by 7.2% from $105.8 million to $98.2 million over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple increased from31.6x to 34.6x for the 12 months ending Dec. 31.

Allegion (NYSE: ALLE)

• 6% stock price decrease.
• Revenue decreased by 4.4% from $2.8 billion to $2.7 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple decreased from 19.1x to 18.1x for the 12 months ending Dec. 31.

Cybersecurity Weaker Performers

Tufin Software Technologies (NYSE: TUFN)

• 1% stock price decrease.
• Revenue declined by 2.3% from $102.4 million to $100 million over the LTM period ending Sept. 30.
• Enterprise value-to-revenue multiple decreased from 5x to 3.7x for the 12 months ending Dec. 31.

SolarWinds Corp. (NYSE: SWI)

• 4% stock price decrease.
• Revenue increased by 10.5% from $906.2 million to $1 billion over the LTM period ending Sept. 30.
• Enterprise value-to-EBITDA multiple decreased from 33.7x to 25.1x for the 12 months ending Dec. 31.

NortonLifeLock (Nasdaq: NLOK)

• 6% stock price decrease.
• Revenue declined by 0.7% from $2.49 billion to $2.47 billion over the LTM period ending Oct. 31.
• Enterprise value-to-EBITDA multiple decreased from 17.5x to 16.1x for the 12 months ending Dec. 31.

SecureWorks Corp. (Nasdaq: SCWX)

• 7% stock price decrease.
• Revenue increased by 4% from $541.5 million to $563.3 million over the LTM period ending Oct. 31.
• Enterprise value-to-revenue multiple decreased from 2.3x to 1.8x for the 12 months ending Dec. 31.

BAE Systems (LSE: BA)

• 8% stock price decrease.
• Revenue increased by X% from $23.6 billion to $25.6 billion over the LTM period ending June30.
• Enterprise value-to-EBITDA multiple decreased from 9.9x to 8.4x for the 12 months ending Dec. 31.

Keep reading for a 2020 M&A overview…

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