Investing

Internet Security: Growth or Value Stocks?

Computer Password
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Internet security has gotten a lot of attention in the past few weeks. President Obama mentioned it in his State of the Union speech just days after the Federal Reserve Bank and some the country’s leading newspapers reported thwarting attempts to get into their networks following publication of some uncomplimentary reporting on China. These threats to data drive the market for ways to combat attacks aimed at fouling or stealing that date.

Internet security firms have experienced an up-and-down 12 months, with most posting negative changes in stock prices. Only two, Sourcefire Inc. (NASDAQ: FIRE) and Palo Alto Networks Inc. (NYSE: PANW), which came public last July, are showing share price gains and both are up less than 10%. Fortinet Inc. (NASDAQ: FTNT), CheckPoint Systems Inc. (NASDAQ: CHKP), Websense Inc. (NASDAQ: WBSN) and Vasco Data Security International Inc. (NASDAQ: VDSI) all show price declines.

The enthusiasm for Sourcefire is taking another leap today following the company’s solid earnings posting last night. Shares are trading at a multiple of nearly 227 to trailing earnings, and and a forward multiple of 35.5. Palo Alto Networks has not been publicly traded long enough for a trailing multiple, but its forward multiple is 127. These are very rich hopes.

CheckPoint, Vasco and Websense have forward multiples in the range of 13.5 to around 19, a far more usual range. Proofpoint, which is trading at nearly 50% above its 52-week low, posted a loss last year and losses are estimated to continue through this year and next.

The media spotlight on Internet security will turn toward another sector soon, and that may give investors some time to look at these stocks in more depth. The basic question is likely to be whether these stocks are growth or value plays. Palo Alto Networks is clearly touted for a growth spurt and Sourcefire probably is as well, though not at the same pace. The others, including CheckPoint, which is the largest by market cap, are nearly fully valued already. None of these stocks pays a dividend either.

Sourcefire’s shares are up nearly 15% just before noon today at $48.50 in a 52-week range of $39.50 to $59.64.

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