Insights

Why Tenable Stock Fell 16% Today

What happened

Shares of cybersecurity stock Tenable Holdings (NASDAQ: TENB) were down 15.6% today as of 12:20 p.m. ET. The company reported earnings that exceeded expectations, but as is almost always the case with stocks, it’s the outlook for the future that matters most.

So what

Specifically, Tenable reported revenue growth of 26% in the second quarter of 2022 compared to the same period a year ago, hauling in $164 million during the spring quarter. Adjusted operating income was $12.2 million, and adjusted earnings per share were $0.05. These results handily exceeded Wall Street’s expectations (consensus among analysts was just $0.01 per share).

Shares were tumbling anyway, though. Tenable said revenue should grow 22.6% year over year in the third quarter at the midpoint of guidance. Adjusted net income is expected to be $9 million to $10 million, less than the $13.7 million reported last year. Between slower revenue growth and lower profitability, investors were feeling a bit gloomy.

Now what

It’s encouraging that cybersecurity services like Tenable are still in high demand, but the bear market is suddenly catching up with this company. Prior to earnings, Tenable was handily beating the S&P 500 index, but just like that it’s now down 17% over the last one-year stretch (versus the S&P 500 down only 10%).  

After the earnings update, shares trade for 50 times trailing-12-month free cash flow. It’s a premium price tag, and thus investors are selling off the stock after the Q3 outlook indicated profitability might take a step backwards. Also bear in mind the Federal Reserve is still in interest rate hiking mode, which lowers the present value of stocks — especially high-growth ones like Tenable. 

Nevertheless, Tenable’s services for finding security risks in a company’s IT infrastructure remain relevant. Tenable is also armed with $511 million in cash and short-term investments offset by debt of $363 million. This is a rock solid option to consider among cybersecurity stocks.

Nicholas Rossolillo and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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