Tenable Holdings Inc: Institutions’ Favorite Digital Cybersecurity Play Is Breaking Out

TENB Stock Down by 16% This Year: Time to Look at It

Digital assets are constantly under attack, so it’s not surprising that the demand for cybersecurity solutions is high.

In the digital cybersecurity space, a compelling play with tremendous upside is Tenable Holdings Inc (NASDAQ:TENB). The company has a global footprint in more than 20 countries, and it serves about 30,000 organizations.

Think about the increasing importance of digital assets for companies and you’ll understand why Tenable stock has great potential.

TENB stock could have been had for $16.28 per share during the March 2020 sell-off, but as of this writing, it’s up by 170%. Much of the stock’s upward move occurred after the sell-off.

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Tenable stock is down by 16% this year and down by 25% from its record $58.45 in January 2021. At its current price, I view TENB stock as an opportunity.

Chart courtesy of StockCharts.com

Tenable Holdings Inc’s Revenues to Power Upward

A glance at Tenable’s five-year revenue picture shows strong growth. 

The company grew its revenues by double-digits over the last four years. While Tenable Holdings Inc’s revenue growth rate has moderated, this is expected, since companies tend to ramp up their revenues at the start.

Tenable’s compound annual growth rate (CAGR) for its revenues was an impressive 37.2% during the time period.

Fiscal YearRevenues (Millions)Growth
2016$124.4 N/A
2017$187.751.0%
2018$267.442.4%
2019$354.632.6%
2020$440.224.2%

(Source: “Tenable Holdings Ltd.” MarketWatch, last accessed July 27, 2021.)

A look ahead shows that, while the company’s revenue growth rate has been moderating, it continues to be relatively strong.

Tenable is expected to grow its revenues by 18.7% to $522.7 million this year and then by 18.4% to $618.9 million in 2022. (Source: “Tenable Holdings, Inc. (TENB),” Yahoo! Finance, last accessed July 27, 2021.)

Trading around 7.5 times its consensus 2022 revenue estimate, Tenable Holdings Inc doesn’t seem cheap on the surface. But the valuation doesn’t look out of place in this market, where many technology stocks trade at much higher valuations.

The key for Tenable stock going forward will be the company’s ability to contain its costs.

Tenable’s earnings before interest, taxes, depreciation, and amortization (EBITDA) have been negative, but they underwent a major improvement in 2020.

Fiscal YearEBITDA (Millions)Growth
2016-$32.8N/A 
2017-$36.1-10.1%
2018-$66.4-84.1%
2019-$79.9-20.4%
2020-$25.568.1%

(Source: MarketWatch, op. cit.)

Tenable Holdings Inc has also been reporting earnings-per-share (EPS) losses on a generally accepted accounting principles (GAAP) basis, but the company’s GAAP diluted EPS improved a lot in 2020.

Fiscal YearGAAP Diluted EPSGrowth
2016-$0.42N/A 
2017-$0.45-7.3%
2018-$1.38-206.8%
2019-$1.0325.2%
2020-$0.4259.0%

(SourceMarketWatch, op. cit.)

On an adjusted basis, Tenable is profitable, earning $0.19 per diluted share in 2020. This is expected to rise to $0.27 this year and to $0.39 in 2022. (Source: Yahoo! Finance, op. cit.)

Tenable Holdings Inc’s free cash flow (FCF) was negative until 2019. Then it surged by 239.9% to a record $43.9 million in 2020.

Fiscal YearFree Cash Flow (Millions)Growth
2016-$8.6N/A
2017-$9.3-8.2%
2018-$8.310.4%
2019-$31.4-278.9%
2020$43.9239.9%

(SourceMarketWatch, op. cit.)

The company’s financial risk is low. Tenable held $340.3 million in cash and $57.5 million in debt at the end of March. (Source: Yahoo! Finance, op. cit.)

The financial flexibility will provide the company with the time and capital necessary to grow its business.

Analyst Take

In my view, Tenable Holdings Inc has favorable tailwinds to drive future revenues. While the company’s valuation looks high, its strong growth and prospects help justify the price of TENB stock.

Institutional investors appear to agree; they’ve been steadily jumping on board. About 334 institutions hold a 94.1% stake in the outstanding shares of Tenable stock. (Source: Yahoo! Finance, op. cit.)