CyberArk Software Ltd. CYBR, a leader in identity security solutions, has delivered an impressive 34.1% gain over the past six months. This remarkable performance has outpaced the broader Zacks Computer and Technology sector’s 8.4% increase and the S&P 500’s 12.1% growth during the same period.

CYBR stock has also outperformed its top peers in the cybersecurity space, including Palo Alto Networks, Inc. PANW, Juniper Networks, Inc. JNPR and CrowdStrike Holdings, Inc. CRWD. In the past six months, shares of Palo Alto Networks, Juniper Networks and CrowdStrike Holdings have gained 20.1%, 4.3% and 3.5%, respectively.

6-Month Price Return Performance

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CyberArk’s robust six-month rally reflects investor confidence in its identity security offerings and strategic initiatives. The company’s impressive quarterly results, rapid annual recurring revenue (ARR) growth, and success in transitioning to a subscription-based model have contributed to its outperformance.

However, the stock’s lofty valuation raises questions about its near-term upside potential. Here’s why holding CyberArk stock makes sense for now.

CyberArk’s Leadership in Identity Security

CyberArk’s leadership in identity security has been a cornerstone of its success. With cyberattacks becoming more sophisticated, enterprises are increasingly prioritizing identity security to protect sensitive data and infrastructure. CyberArk’s focus on privileged access management, endpoint security, and Zero Trust initiatives positions it well to capture demand in this rapidly growing market.

Its Zero Standing Privilege approach, which minimizes the risk of compromised credentials, has gained traction among enterprises. By aligning its offerings with industry trends, CyberArk is cementing its position as a leader in identity-centric security.

Going ahead, the company’s recent $1.54 billion acquisition of Venafi, a leader in machine identity management, is a strategic move to expand its addressable market. Venafi’s expertise in securing machine-to-machine communication complements CyberArk’s human identity security solutions, creating a comprehensive portfolio for hybrid environments.

This acquisition is expected to boost CyberArk’s ARR growth and strengthen its competitive edge in the rapidly growing machine identity security market. While the integration poses execution risks, the long-term synergies make this deal a promising catalyst for future growth.

CYBR’s Resilient Financial Performance

CyberArk’s financial performance underscores its operational strength. In the third quarter of 2024, the company reported revenues of $240.1 million, up 26% year over year, and a non-GAAP operating margin of 14.7%, expanding 590 basis points. These results exceeded market expectations and demonstrated CyberArk’s ability to balance growth with profitability.

The company’s raised full-year 2024 revenue guidance to $983-$989 million, indicating 31% growth at the midpoint, reinforces its growth momentum. With a focus on margin expansion and cash flow generation, CyberArk is well-positioned to navigate macroeconomic challenges.

One of the key drivers of CYBR’s growth is a robust increase in ARR. In the third quarter of 2024, ARR surged 31% year over year to $926 million, with subscription ARR climbing 46% to $735 million. This reflects the strong adoption of CyberArk’s identity security solutions across enterprises, positioning the company as a trusted partner in cybersecurity. The growing ARR base not only provides revenue visibility but also highlights the company’s success in retaining and expanding its customer relationships.

Analysts remain bullish on CyberArk’s prospects. The Zacks Consensus Estimate for the current and next fiscal years suggests robust growth in both revenues and earnings. Moreover, the company’s long-term earnings growth rate is projected at 20%, surpassing the industry average of 16%.

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CyberArk’s Lofty Valuation Raises Concern

CyberArk’s current valuation raises concerns. The stock trades at high multiples relative to its earnings and revenues. CYBR stock is currently trading at 92.95X forward 12-month earnings compared with 26.47X for the sector. Similarly, it trades at 11.17X forward 12-month sales compared with the sector’s 6.13X. These elevated valuations indicate that a lot of future growth is already priced into the stock, leaving it vulnerable to any negative news or earnings misses.

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Conclusion: Hold CYBR for Now

CyberArk’s 34% rally in six months highlights its strength as a leader in the cybersecurity space. The company’s long-term prospect seems promising, considering its robust ARR growth, strategic acquisitions, and focus on identity security. However, the stock’s lofty valuation multiples warrant caution.

Hence, holding CYBR stock seems the most prudent choice for existing shareholders. Investors should wait for a better entry point to take any new position in the stock. Currently, CyberArk carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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