Headquartered in London, Mimecast Limited (MIME) provides software-as-a-service enterprise email management. Its Mimecast Email Security solution protects against the delivery of malware, spam, viruses, and impersonation attacks. In comparison, cloud-based security company Zscaler (ZS) in San Jose, Calif., provides a platform built as a multi-tenant, distributed cloud service designed to scale and deliver real-time insights into security issues. It mainly offers two principal cloud services—Zscaler Internet Access and Zscaler Private Access.
The widespread adoption of remote lifestyles amid the COVID-19 pandemic, given the increasing dependency on cloud computing and the internet of things (IoT), has led to an increased number of ransomware attacks and cyber threats. With the continuation of hybrid working and digitization, cybersecurity companies should witness steady demand for their products and solutions. Furthermore, a group of bipartisan lawmakers has urged the Securities and Exchange Commission to increase transparency requirements for companies through mandatory cybersecurity reporting, which could be a boon for the cybersecurity sector. According to Grand View Research, the global cybersecurity market is expected to grow at a 10.9% CAGR through 2028. Therefore, both MIME and ZS should benefit.
MIME’s shares have gained 2.4% in price over the past three months, while ZS delivered negative returns. Also, MIME’s 35.8% gains over the past six months are significantly higher than ZS’ 18.1% returns. And MIME is the clear winner with 83% gains versus ZS’ 27.4% returns in terms of the past year’s performance.
Click here to checkout our Cybersecurity Industry Report for 2022
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On February 3, 2022, MIME announced a new integrated solution with SentinelOne (S) to improve end-to-end threat protection, accelerate incident response, and minimize delays for security teams. Jules Martin, vice president, ecosystems & alliances at MIME, said, “Our integration with S allows us to improve and accelerate the incident response capabilities we offer our customers.”
On Nov. 30, 2021, Jay Chaudhry, Chairman, and CEO of ZS, said, "CISOs and CIOs are looking to phase out legacy network security in favor of zero trust architecture, due to increasing cyber and ransomware risks and accelerating digital transformation. This architecture shift continues to drive strong demand for our Zero Trust Exchange platform.”
Recent Financial Results
MIME’s revenue increased 16% year-over-year to $151.60 million for its fiscal third quarter ended December 31, 2021. The company’s adjusted EBITDA grew 32.6% year-over-year to $45.88 million, while its non-GAAP net income came in at $26.66 million, representing a 32.4% year-over-year increase. Also, its EPS was $0.38, up 22.6% year-over-year.
ZS’ revenues increased 62% year-over-year to $230.50 million for its fiscal first quarter, ended Oct. 31, 2021. The company’s non-GAAP income from operations grew 21.8% year-over-year to $23.95 million, while its non-GAAP net income came in at $21 million, representing a 4.9% year-over-year increase. Also, its non-GAAP EPS was flat at $0.14 year-over-year.
Past and Expected Financial Performance
MIME’s revenue and tangible book value have grown at CAGRs of 21.4% and 127.5%, respectively, over the past three years. Analysts expect MIME’s revenue to increase 18.5% in the current year and 14.9% next year. The company’s EPS is expected to grow 21.9% in the current year and 12.9% next year. Furthermore, its EPS is expected to grow 16.5% per annum over the next five years.
In comparison, ZS’ revenue and tangible book value have grown at CAGRs of 52.7% and 20.3%, respectively, over the past three years. The company’s revenue is expected to increase 50.1% in the current year and 34.6% next year. Its EPS is expected to grow 0.4% in the current year and 78.8% next year. Also, ZS’ EPS is expected to increase at 45.4% per annum over the next five years.
Profitability
MIME’s trailing-12-month revenue is 1.32 times than ZS’. MIME is also more profitable, with an EBITDA margin and net income margin of 18.18% and 8.21%, respectively, versus ZS’ negative returns.
Furthermore, MIME’s ROE, ROA, and ROTC are 11.07%, 4.13%, and 6.15%, respectively, compared to ZS’ negative values.
Valuation
In terms of forward non-GAAP P/E, ZS is currently trading at 538.16x, which is significantly higher than MIME’s 55.75x. And ZS’ 290.21x forward EV/EBITDA ratio is higher than MIME’s 30.48x.
So, MIME is relatively affordable here.
POWR Ratings
MIME has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, ZS has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MIME has an A grade for Growth, which is consistent with analysts’ expectations that its EPS will increase 14.3% for the quarter ending March 31, 2022. In contrast, ZS has a C grade for Growth, which is in sync with analysts’ expectations that its EPS will decline 26.7% for the quarter ending April 30, 2022.
Moreover, MIME has an A grade for Quality. This is justified given MIME's 11.07% trailing-12-month ROCE, which is 37.7% higher than the 8.04% industry average. ZS has a Quality grade of C, which is in sync with its negative trailing-12-month ROCE, compared to the 8.04% industry average.
Among the 28 stocks in the Software - Security industry, MIME is ranked #6. In comparison, ZS is ranked #17.
Beyond what I have stated above, we have also rated the stocks for Value, Momentum, Stability, and Sentiment. Click here to view all the MIME ratings. Also, get all the ZS ratings here.
The Winner
The demand for advanced cybersecurity solutions is expected to increase with the growing number of cybercrimes in the digital era. So, both MIME and ZS are expected to gain. However, we think it is better to bet on MIME now because of its lower valuation, higher profitability, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software - Security industry here.
Click here to checkout our Cybersecurity Industry Report for 2022
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MIME shares were trading at $79.68 per share on Friday morning, up $0.03 (+0.04%). Year-to-date, MIME has gained 0.14%, versus a -5.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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