If strong fundamentals and above-average returns are the criteria for selecting the best technology stocks, then ServiceNow Inc. (NYSE: NOW) and CyberArk Software (NASDAQ: CYBR) should be near the top of the list. Although these companies don’t have the same brand recognition as the major large-caps, they operate in large addressable markets that intersect almost every sector of the economy.

 

ServiceNow (NYSE: NOW)

  • Market Cap: $49.8 billion
  • Forward P/E: 87.0
  • Annual Revenue Growth: 35% (December 2018)
  • Free Cash Flow: $562 million
Service Now Share Price YTD - May 5 2019

Source: Yahoo Finance

Unless you’ve been monitoring the cloud computing market, there’s a pretty good chance that ServiceNow slipped beneath your radar. The cloud-based workflow automation provider is coming off a year of spectacular growth, with revenues exceeding $2.6 billion. The Santa Clara, California-based company turned a profit of $7 million in the fourth quarter. It lost $27 million for the full year but that’s paltry compared with the $149 million hole in 2017.

Since 2010, ServiceNow has increased its revenues by a whopping 5,967%.

The company’s recurring revenue stream and strong cash flow position suggest it is poised to accelerate earnings over time. Since 2010, ServiceNow has increased its revenues by a whopping 5,967%.

In terms of share price, NOW has increased by more than 47% since the start of the year and has set multiple record highs in the process. As a result, the company now has a total market capitalization of roughly $50 billion, an impressive feat given its relatively short history as a publicly-traded stock.

 

CyberArk Software (NASDAQ: CYBR)

  • Market Cap: $4.8 billion
  • Forward P/E: 115.25
  • Annual Revenue Growth: 31% (2018)
  • Free Cash Flow: $121.5 million
CyberArk Software Share Price YTD - May 5 2019

Source: Yahoo Finance

CyberArk Software has quickly emerged as one of the world’s fastest-growing cybersecurity companies. It claims to be the only security software firm that is focused on eliminating cyber attacks that use insider privileges to attack the heart of an organization. To that end, it has developed a global partnership spanning the world’s largest technology providers to create the industry’s first Privileged Access Security Marketplace, which already features hundreds of certified solutions and plugins.

CyberArk is coming off a stellar year of growth and earnings. In the fourth quarter alone, it generated $109.1 million in total sales, up 36% from year-ago levels. The vast majority of that total ($66.8 million) was recurring revenue (i.e., licensed products and services). For the full year, sales increased 31% to $342.3 million.

The company’s stellar growth is largely tied to its ability to land big-name clients. CyberArk already provides cybersecurity solutions to more than half of the Fortune 500 companies.

Year-to-date, CYBR stock has gained a staggering 73%, far outpacing the Nasdaq Composite Index.

A word of caution: CYBR’s forward P/E is higher than its current P/E ratio, which usually implies lower expected earnings.

 

Conclusion

With the bull market back on track, technology stocks continue to offer strong growth potential. ServiceNow and CyberArk are two companies you should put on your radar.

Disclaimer: Author has no investment position in ServiceNow and CyberArk Software at the time of writing.