NEW YORK (TheStreet) -- The reported loss of data on 76 million customer accounts at JPMorgan Chase's (JPM) - Get Report Chase Bank unit is an opportunity for investors to look again at the cybersecurity sector.
Over the last 52 weeks most stocks in the group have done well. Barracuda Networks (CUDA) stock is up over 25%, Checkpoint (CHKP) - Get Report is up over 21%, and Fortinet (FTNT) - Get Report is up nearly 25%. But the star of the group, by far, has been Palo Alto Networks (PANW) - Get Report , up nearly 127% in the last 52 weeks. Palo Alto was first to market with a next-generation firewall and its shares are currently up nearly 8% Friday. Checkpoint stock is up over 1%, Barracuda is up over 6% and Fortinet is up nearly 3% on the day.
Growth rates at most of these companies, however, have been slowing as competition increases. Fortinet sales are up just 25% year over year. Barracuda sales are up just 17.8% and those of Checkpoint just 6.5%. Revenue at Palo Alto, by contrast, are up almost 59% year over year.
The biggest players in cybersecurity, however, remain big equipment vendors such as Cisco (CSCO) - Get Report , Dell and Intel (INTC) - Get Report , which are making it harder for small vendors to grab new enterprise customers.
Since early September Palo Alto insiders have been selling shares, its CEO and CFO flipping stock options as soon as they were executed, and its latest next-generation firewall product received a low "caution" rating in tests from NSS Labs in Austin, which slammed it for failing to detect evasion measures used by attackers and not living up to its claim of handling 1 Gbps of traffic.
The company responded by noting that it did not actively participate in the tests and did not pass along tuning and configuration information. It accused NSS of having a "pay to play" approach in its tests, to which the lab responded in a detailed blog post. NSS CEO Vikram Phatak told TheStreet NSS engineers are now working with those of Palo Alto to address and fix problems with its product.
Another reason for optimism is the company's release this week of Traps, a product aimed at protecting network end points against the most commonly used attacks. It is integrated with Wildfire, the heart of what it now calls a "threat intelligence cloud," and its firewalls to provide a more comprehensive solution to customers.
Traps resulted from Palo Alto's purchase of Cyvera, an Israeli company, for $200 million in March. The company took on $466 million in debt during the quarter after it bought Cyvera, making the stock vulnerable to a short-term pullback based on debt and valuation.
The biggest threat remains the larger players.
Intel bought McAfee in 2010 for $7.6 billion, followed it up with the purchase of Stonesoft, a Finnish firewall company, in 2013 for $389 million and has now built an entire Intel Security group which includes endpoint protection.
All this has cut next-generation firewall prices by half over the last year, Phatak said, adding other companies in the space are investing heavily. He spoke highly of Fortinet's latest next-generation firewall product.
Real fixes won't just come from new products, he added, but a new approach to cybersecurity, where companies develop plans to keep operating despite a breach. "It's a change in the way you think of things. Will products be purchased? Sure. But I don't think product comparisons will solve the problem."
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates PALO ALTO NETWORKS INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate PALO ALTO NETWORKS INC (PANW) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."
You can view the full analysis from the report here: PANW Ratings Report