Tenable Stock Doubled From March Lows But More Gains to Come

Tenable Stock Doubled From March Lows But More Gains to ComeTenable Stock Is a High-Growth Global Cybersecurity Play

A major focus at this time is the surfacing of cybersecurity threats in the digital space that will likely only worsen.

An intriguing mid-cap cybersecurity play with a focus on making sure the bad guys don’t hack a company’s critical digital assets is Tenable Holdings Inc (NASDAQ:TENB).

Tenable has been around for nearly two decades. The company runs a cloud-based cybersecurity platform used by a diverse global client base of roughly 30,000 organizations.

During the March stock market sell-off, TENB stock plummeted to $16.28, but since then it more than doubled to a 52-week high of $36.51 on July 29, just below its all-time high of $39.38 in October 2018.

Chart courtesy of StockCharts.com

Perhaps the easy money has already been made, but Tenable stock still has above-average long-term prospects that will likely reward investors.

Strong Revenue Growth & Pathway to Profitability

Tenable Holdings Inc reported higher revenues in each of the last three years, with revenue growth in the high double-digits to a record in 2019. The compound annual growth rate (CAGR) was an impressive 41.8%.during this time.

Fiscal Year Revenues (Millions) Growth
2016 $124.4
2017 $187.7 50.9%
2018 $267.4 42.4%
2019 $354.6 32.6%

(Source: “Tenable Holdings Ltd.MarketWatch, last accessed August 3, 2020.)

But as is generally the case with many companies breaking out in revenues, Tenable is expected to see its revenue growth rate moderate.

For 2020, the company is expected to ramp up its revenues by 21.4% to $430.6 million, followed by 19.2% to $513.16 in 2021. (Source: “Tenable Holdings, Inc. (TENB),” Yahoo! Finance, last accessed July 31, 2020.)

While the growth rate is moderating, it is still quite strong.

As its revenues ratchet higher, look for Tenable Holdings Inc to control its cost side and move toward positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS) on both a generally accepted accounting principles (GAAP) and adjusted basis.

Fiscal Year EBITDA (Millions) Growth
2016 -$32.8
2017 -$36.1 -10.1%
2018 -$66.4 -84.1%
2019 -$79.9 -20.4%

(Source: MarketWatch, op. cit.)

Fiscal Year Diluted GAAP EPS Growth
2016 -$0.42
2017 -$0.45 -7.3%
2018 -$1.38 -206.8%
2019 -$1.03 25.2%

(Source: MarketWatch, op. cit.)

We are potentially seeing adjusted profits around the corner for Tenable. The company’s adjusted loss is estimated to narrow to $0.04 per diluted share this year and to $0.05 (or as high as $0.20) per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

While TENB stock’s current valuation of 172 times the company’s high EPS estimate for 2021 is excessive, the expectation is that Tenable will accelerate its earnings growth.

The company’s free cash flow (FCF) is negative. This is not a surprise, but I expect a move toward positive FCF as revenues and earnings rise.

Fiscal Year Free Cash Flow (Millions) Growth
2016 -$8.6
2017 -$9.3 -8.2%
2018 -$8.3 10.4%
2019 -$31.4 -278.9%

(Source: MarketWatch, op. cit.)

Analyst Take

Tenable Holdings Inc’s strong fundamentals and pathway to profits support my bull case for TENB stock. Institutions also clearly like Tenable stock, with 223 institutions holding a 75.5% interest in the outstanding shares. (Source: Yahoo! Finance, op. cit.)

Some may question Tenable’s high forward earnings multiple, but, as I said, this will likely improve with time. If foreign and domestic entities continue to attempt to break into digital assets, companies like Tenable should reap the benefits.