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1 Spectacular Stock to Buy During the Latest Dip in the S&P 500

Between October 2023 and March 2024, the benchmark S&P 500 (^GSPC -0.00%) index surged by 25% in (almost) a straight line. It culminated in a new record high of 5,254 on March 28, but the index is now in the midst of an ongoing sell-off.

The S&P 500 is currently trading 3.6% below its best-ever level in what largely appears to be a typical bull market pullback. History proves the index always rises to new heights given enough time, which could be a great opportunity for investors to top up their portfolios.

One stock to consider is cybersecurity powerhouse Tenable (TENB -1.75%), a leader in the vulnerability management segment of the industry. Cybercrime is set to cause $9.5 trillion worth of damage globally this year (according to Cybersecurity Ventures) and here’s why Tenable is perfectly positioned to defend its customers and create value for investors.

Modern cybersecurity needs to be proactive

With the rise of technologies like artificial intelligence (AI), cybercriminals are more sophisticated than they have ever been. Companies must be vigilant from the endpoint to the cloud, and the best way to do that is by using proactive cybersecurity tools that focus on prevention.

Tenable is home to Nessus, the most deployed vulnerability assessment tool in the industry. It actively scans operating systems, networks, and devices in search of weak points so businesses can patch them before they are exploited by malicious actors. Nessus is an onramp into the Tenable ecosystem, quickly becoming a one-stop solution for any business’s vulnerability management needs.

Tenable offers cloud security, identity security, and attack surface management (to name a few). It also bundles its software into industry-specific packages to make onboarding easier. For example, it offers tailored solutions for automotive manufacturers, financial institutions, and healthcare providers, among others.

Last year, Tenable also entered the world of generative AI with the launch of ExposureAI. It’s a powerful virtual assistant designed to speed up analysis and decision-making to improve outcomes on the Tenable platform. Plus, thanks to its ability to process natural language, employees outside of technical teams can also use ExposureAI to assess their organization’s risk posture.

Tenable says it has the world’s largest repository of contextual exposure data, which underpins ExposureAI’s capabilities. Data is king in the world of AI, so this means competitors will struggle to develop a product with comparable functionality in the vulnerability management space specifically.

Tenable is sacrificing some of its growth to improve its bottom line

Tenable just released its financial results for the first quarter of 2024. The company generated $216 million in revenue, which was above its $213 million forecast, and it represented growth of 14% year over year. However, Tenable’s revenue growth has consistently decelerated over the past year; in Q1 2023, for example, it delivered an increase of 18%.

But there is a good reason for the slowdown. Tenable has always invested heavily in growth initiatives like marketing and research and development, even if it meant generating a net loss each quarter, because of its “land-and-expand” strategy. Basically, Tenable prioritized acquiring new customers because once they are in the door, they tend to spend an increasing amount of money over time, especially as the company’s product portfolio continues to grow.

But in light of challenging economic conditions, investors have favored profitable companies lately because they are deemed more secure. As a result, Tenable has shifted its focus to managing costs in order to improve its bottom line. During Q1 2024, it only increased its operating expenses (like marketing and R&D) by 8% year over year, and since revenue grew by 14%, the company’s net loss shrank by an impressive 42% to just $14.4 million.

On a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation, Tenable actually delivered $30.4 million in net income (profit) during Q1, a 133% increase from the year-ago period.

Slowing revenue growth isn’t a positive in isolation, but trading some growth to generate profits typically leads to a more sustainable business over the long term. Plus, Tenable is proving to investors it can successfully pull that lever, so when broader economic conditions become more certain — perhaps when interest rates eventually fall — the company could shift back to a posture that favors growth to expand its business more quickly.

Why Tenable stock is a buy during the latest dip in the S&P 500

According to research by McKinsey & Company, the corporate sector spent $150 billion on cybersecurity software in 2021. Based on a 12.4% compound annual growth rate, companies are forecasted to spend around $213 billion collectively this year. However, McKinsey says that is insufficient to fend off modern threats, suggesting $2 trillion in cybersecurity spending would be more appropriate. That leaves a $1.8 trillion spending gap, which spells opportunity for companies like Tenable.

Earlier, I cited Cybersecurity Ventures’ forecast that cybercrime could do over $9 trillion worth of damage this year, so investing in cybersecurity is far cheaper for businesses than enduring the cost of a cyber-attack. After all, events like data breaches cause significant reputational harm, which is much harder to resolve than the financial impact.

Tenable stock is trading 12.8% below its all-time high amid the recent sell-off in the broader stock market. Based on its price-to-sales (P/S) ratio — which divides a company’s market capitalization by its trailing 12-month revenue — Tenable stock is significantly cheaper than competitors like CrowdStrike and Palo Alto Networks:

PS Ratio data by YCharts

Both CrowdStrike and Palo Alto are much larger businesses with more revenue and faster growth (although their growth is decelerating as they also focus more on managing costs), but the opportunity ahead in the cybersecurity industry is large enough to lift all boats. Personally, I don’t think Tenable deserves to be a whopping 73.7% cheaper than CrowdStrike on a P/S basis.

Therefore, so long as investors have a time horizon of years rather than weeks or months, the recent stock market sell-off appears to be offering a great entry point into the Tenable story.

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