CyberArk Software Ltd. CYBR has been on a stellar run in 2024, gaining 45% year to date (YTD). This robust performance has significantly outpaced the broader Zacks Computer and Technology sector’s 35.5% increase and the S&P 500’s 28.2% rise, reinforcing its position as a standout performer in the cybersecurity space.

CYBR stock has also outperformed the Zacks Computers - IT Services industry and its top peers in the cybersecurity space, including Palo Alto Networks, Inc. PANW, Juniper Networks, Inc. JNPR and Check Point Software Technologies Ltd. CHKP. YTD, the industry has risen 17.1%, while shares of Palo Alto Networks, Juniper Networks and Check Point Software have soared 36.4%, 27.7% and 22.8%, respectively.

YTD Price Return Performance

Image Source: Zacks Investment Research

CyberArk’s robust YTD 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

At the heart of CyberArk’s success lies its dominance in the identity security market. With cyber threats growing more sophisticated, enterprises are doubling down on privileged access management and Zero Trust initiatives. CyberArk’s solutions, such as its Zero Standing Privilege approach, align with these industry trends, ensuring its relevance in an evolving threat landscape.

The company’s strategic $1.54 billion acquisition of Venafi, a leader in machine identity management, bolsters its position. This move extends CyberArk’s reach into machine-to-machine security, complementing its core human identity offerings. While integration challenges exist, the long-term potential to expand its addressable market and enhance annual recurring revenue (ARR) growth makes this acquisition a compelling growth driver.

Resilient Financial Performance of CyberArk

CyberArk’s strong financials underscore its operational resilience. In the third quarter of 2024, the company posted a 26% year-over-year revenue increase to $240.1 million, alongside a non-GAAP operating margin of 14.7%, a 590 basis point expansion. These results exceeded expectations, demonstrating CyberArk’s ability to balance profitability with growth.

The company raised its full-year 2024 revenue guidance to the $983-$989 million band, indicating robust 31% growth at the midpoint. A key highlight was the 31% year-over-year surge in ARR to $926 million, driven by a 46% increase in subscription ARR. This growth reflects the strong adoption of CyberArk’s identity solutions and provides stable revenue visibility moving forward.

Analysts remain optimistic about the company’s future. The Zacks Consensus Estimate for the current and next fiscal years suggests robust growth in revenues and earnings. Moreover, CyberArk’s long-term earnings growth rate is projected at 20%, surpassing the industry average of 16.6%.

Image Source: Zacks Investment Research

Valuation Concerns Persist for CyberArk

Despite its strengths, CyberArk’s valuation remains a point of concern. The stock trades at 90.2X forward 12-month earnings, significantly higher than the sector average of 27.8X. Its forward 12-month sales multiple of 10.81X also exceeds the sector average of 6.6X. These elevated valuations suggest that much of its future growth is already priced in, leaving the stock vulnerable to market corrections or earnings disappointments.

Image Source: Zacks Investment Research

CYBR stock’s price-to-earnings (P/E) multiple is also higher than its peers in the cybersecurity space, including Palo Alto Networks, Juniper Networks and Check Point Software Technologies. At present, PANW, JNPR and CHKP have a forward 12-month P/E ratio of 30.19, 18.79 and 18.99, respectively.

Conclusion: Hold CyberArk Stock for Now

CyberArk’s impressive rally in 2024 underscores its position as a leader in the cybersecurity sector. Its focus on identity security, strategic acquisitions and growing ARR base offer strong long-term growth prospects. However, its lofty valuation warrants caution.

For existing shareholders, holding the stock remains a prudent strategy to capitalize on its long-term potential while navigating current market dynamics. However, new investors may benefit from waiting for a more attractive entry point. CyberArk currently carries a Zacks Rank #3 (Hold), reflecting a balanced outlook amid its robust fundamentals and valuation challenges. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report

Check Point Software Technologies Ltd. (CHKP) : Free Stock Analysis Report

Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report

CyberArk Software Ltd. (CYBR) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research