THE Russell 2000 The index hosts approximately 2,000 of the smallest publicly traded companies in America. It has generated an average annual return of 7.9% over the past 10 years, but increased to 13.6% earlier in 2024 as falling interest rates and strong economic growth boosted the investor confidence in small-cap stocks.

The index is currently in the midst of a decline, falling about 4% from its peak in mid-October. Investors are being cautious ahead of the U.S. presidential election because there is a big difference in the policies proposed by the two candidates on key economic issues like the corporate tax rate.

However, stocks tend to rise over the long term, regardless of which party is in the White House. Therefore, the recent weakness in the Russell 2000 could provide a buying opportunity. Here’s why investors might consider adding a cybersecurity hub Defensible (NASDAQ:TENB) to their wallets.

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A vulnerability assessment specialist

Most modern organizations have a growing digital presence, making them vulnerable to malicious actors who can strike at any time of day and from anywhere in the world. Tenable is a vulnerability management specialist, proactively identifying weaknesses in an organization’s networks, operating systems and devices, so they can be fixed before hackers exploit them.

Tenable’s Nessus platform is the most accurate and widely used vulnerability assessment tool in the cybersecurity industry. It also offers the broadest coverage, providing protection against more than 91,000 common vulnerabilities and exposures. Nessus has become an effective gateway to Tenable’s growing portfolio of other cybersecurity software, which includes industry-specific solutions for companies in automotive manufacturing, financial services, healthcare, and more.

Tenable claims that 82% of automakers experienced four hours of unplanned downtime over a 12-month period, with an estimated cost of $22,000 per minute. Tenable provides advanced asset tracking, vulnerability management, and threat intelligence solutions to secure the entire supply chain and production processes, reducing the risk of unplanned outages.

The company also offers a platform called Tenable One, which brings together cloud security, identity security, and vulnerability management software for businesses in virtually every industry. It is powered by ExposureAI, which uses artificial intelligence (AI) to give cybersecurity leaders clear mitigation guidance, faster incident response times, and deeper insights into their organization’s risk profile.

Tenable claims to have the industry’s largest repository of exposure data, including a staggering 1 trillion unique threats and vulnerabilities, which has the potential to make ExposureAI more powerful than competing products.

Profitability is in sight

Tenable generated revenue of $227.1 million during the third quarter of 2024 (ended September 30), an increase of 13% from the year-ago period, and also significantly higher than management forecast of $223 million. The strong result prompted the company to slightly raise its revenue forecast for all of 2024, with now potentially up to $897.3 million on the horizon.

Tenable serves more than 44,000 customers, representing 65% of Fortune 500 businesses. A record 1,853 customers were spending at least $100,000 annually with Tenable at the end of the third quarter. This is an increase of 18.4% from last year, highlighting the importance that advanced cybersecurity software is becoming for larger, more complex organizations.

Tenable has a history of losses because it invested heavily in growth-oriented initiatives like marketing and research and developmentbut the company has been more cautious in recent quarters. He increased his operating expenses by just 9.1% (year-over-year) in the third quarter, and because revenues grew much faster, more money was pumped into the bottom line.

Tenable still reported a net loss of $9.2 million in the quarter, but that represents a 40% improvement over its net loss of $15.5 million in the same quarter last year. On a non-GAAP basis – which excludes one-off, non-cash expenses such as stock-based compensation — the company actually generated a profit of $39.3 million, an increase of 42%.

Profitability is important because it proves to investors that Tenable doesn’t need to spend huge amounts of money to generate growth. Additionally, it gives the company the flexibility to invest more aggressively in customer acquisition and new product development, which could lead to faster revenue growth in the future.

Tenable has a big opportunity ahead and its stock looks cheap

Tenable is in the Russell 2000 index because it has a market capitalization of just $4.7 billion, making it a small-cap stock. For some perspective, Crowd strike (NASDAQ:CRWD) And Palo Alto Networks (NASDAQ:PANW) are two of the leaders in the cybersecurity industry, valued at $72 billion and $117 billion, respectively.

Tenable shares are significantly cheaper than both of these companies based on price-to-sales ratio (P/S) valuation measure. Its P/S ratio is just 5.3, representing a discount of over 65% to CrowdStrike and Palo Alto.

PS Report data by Y charts.

CrowdStrike deserves a premium valuation because it consistently grows its quarterly revenue by 30% or more. However, Palo Alto grew its revenue by just 12% last quarter, which is actually slower than Tenable’s third-quarter result of 13%. From this point of view, I think that Tenable’s valuation should be much higher: even if its stock doubles, it would still be significantly cheaper than that of its peers.

Tenable puts its addressable market at $33 billion, but that could be a very conservative estimate. According to Cybersecurity Ventures, cybercrime will cause up to $10.5 trillion in damage in 2025. Research firm McKinsey and Company estimates that businesses should collectively spend $2 trillion on cybersecurity software each year to mitigate these threats, but they currently spend around 10% of their budget. that.

As the financial and reputational costs of cyberattacks increase, cybersecurity spending will only move in one direction. That’s why Tenable stock could be a great long-term buy during a market decline.

Should you invest $1,000 in Tenable right now?

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Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool ranks and recommends CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.