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Penny stock Corero Network Security (LSE: CNS) is outperforming the market by a wide margin in 2026. Year to date, it’s up about 57% versus a gain of about 8% for the FTSE All-Share index.
Given that it operates in the booming field of cybersecurity, I’m not surprised by this outperformance – I highlighted it back in February as a stock to consider. The question is, is it still worth considering after its big gains this year?
Who’s Corero Network Security?
For those unfamiliar with Corero Network Security, it’s a small British company that specialises in Distributed Denial of Service (DDoS) protection. A DDoS attack’s an attempt to disrupt a server, service, or network by overwhelming it with a flood of internet traffic.
Last year, the group generated revenue of around $25.5m, up from $16.9m five years earlier. At today’s share price of 15p, it has a market-cap of around £77m.
A company with momentum
Now, recent updates from the company have been very positive. Which makes sense given the growing threat of cyber attacks (experts are calling this month ‘Black October’ given the worrying cyber backdrop).
On 2 September, the company told investors it had secured a significant new contract with a leading UK-based fixed and mobile telecommunications and connectivity provider. It also said at the time it had won a contract with a major neocloud company.
Then on 9 September, the company posted a strong set of H1 results. Here, revenue was up 42% year on year to $15.5m while EBITDA rose to $2.6m versus an EBITDA loss of $1.4m a year earlier.
More recently (14 October), the company said order intake in Q3 was up 50% year on year to $11.1m thanks to two big contract wins. So clearly the company has a lot of momentum at the moment – a major plus from an investment perspective.
How’s the valuation?
As for the valuation, it looks a bit steep if we use this year’s earnings forecast to calculate a price-to-earnings (P/E) ratio. With analysts expecting 0.3 cents in earnings per share this year, the P/E ratio’s about 66. The P/E ratio drops to 33 using next year’s earnings forecast however, and that isn’t high for a cybersecurity company.
Another valuation metric that isn’t particularly high is price-to-sales ratio. With analysts expecting sales of $32.2m (around £24m), this ratio’s only 3.2. For reference, industry leaders CrowdStrike and Palo Alto Networks have price-to-sales ratios of 45 and 25, respectively.
Given that the valuation isn’t crazy, I’m wondering if Corero Network Security could be a takeover target? I’m expecting lots of consolidation in this industry in the years ahead.
My view
In light of the business momentum and the valuation, I reckon this stock’s still worth a look today. It’s high up on the risk spectrum as revenue growth isn’t linear and the company has struggled to generate profitability in the past.
But as a speculative growth investment, I see potential. It’s worth noting that the free float here is only 24% (meaning only 24% of the shares are available to trade) so if interest in the name picks up it could really fly.
Should you invest £5,000 in Corero Network Security Plc right now?
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Edward Sheldon owns shares in CrowdStrike and Palo Alto Networks.
This story originally appeared on Motley Fool
