• Tenable reported a very strong Q1 earnings with revenue, margins, and EPS all above consensus expectations.
• Management slightly raised full-year guidance, though billings growth implies acceleration throughout the remainder of the year, a challenging task.
• Valuation remains a little suppressed at just over 7x revenue, whereas Qualys trades closer to 10x.

Since reaching 2019 high in late April, Tenable (TENB) has seen its shares sink over 20%. Not too long ago, the stock was trading near $40 before the late-2018 correction pushed the stock down nearly 50%. Although the market has been strong since May, TENB has not experienced the same success.

The company reported Q1 earnings that were better than consensus expectations, though guidance still implies billings growth accelerating throughout the year, which investors have not priced into the stock. Although Q1 revenue growth of 36% decelerated slightly from 39% in Q4, TENB has consistently grown its revenue above 35% for many quarters, resulting in its premium valuation.

Data by YCharts

Though the stock is still above the original $23 IPO price, the company has contracted nearly 50% from all-time highs even as the company’s fundamentals have remained intact. The long-term thesis is still in play and investors’ worries over the next few quarters should not trump the long-term growth potential. TENB’s SaaS based business model is favorable compared to legacy hardware offerings as customers continue to shift their workloads to the cloud. As the company continues to grow and take market share, the stock should work over the long term.

Brief Overview

TENB offers cloud-based vulnerability management services which help protect an enterprise's assets, such as network containers and web applications. Essentially, the company provides solutions for enterprises to manage and measure cybersecurity risk, specifically focusing on vulnerability assessment and management market. The company looks to quantify how much damage would be caused by a security breach - information that is very valuable to enterprises as security breaches continue to make headlines on a weekly basis.

As software applications are added to an enterprise's architecture, this can cause challenges determining where certain security risks are and how vulnerable the overall organization is. TENB aims to solve this issue. The biggest competitor is Qualys (QLYS) which is one of the few companies specializing in vulnerability management.

The ability for an enterprise to maintain visibility and control over the security of its assets is now essential. Enterprises are also adapting to newer technologies, such as the Internet of Things, containers, new business models, and more. All of these require increased efficient security and control measures.

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