One year after the large hack heard around the world for Sony, Jim Cramer sees most cybersecurity stocks struggling. But there is one best-of-breed cybersecurity play that has made a comeback, and Cramer has crowned it as the winner — Palo Alto Networks.
"I know a lot of people have been saying 'yeah, yeah, sure, sure' about Palo Alto because it is not yet profitable, but I think some very big free cash flow projections will ameliorate that concern," the "Mad Money" host said.
Palo Alto reported earnings on Tuesday, and confirmed a stunning 61 percent billings growth year over year, and a 71 percent increase in deferred revenue. Cramer interpreted those numbers as meaning that, down the road, the profits will be there for Palo Alto.
Why was Palo Alto able to deliver fantastic numbers, while other stocks in the group such as FireEye did not?
It all came down to timing. Palo Alto is the type of company that customers bring in when they want to catch their breath. A company like Fortinet services companies worried about an imminent attack and FireEye is the company to call when it needs a post-mortem after being hacked.
When Cramer spoke with the CEO of FireEye on Nov. 5, the CEO confirmed that the notion of cybersecurity had become less episodic. Meaning, it was less of a function of individual data breaches that have been seen at Target, Home Depot or Sony, and more of a solution that companies depend on all of the time to prevent them from occurring.
Read more from Mad Money with Jim Cramer
"With these numbers, it seems to me that Palo Alto is the one that is winning in this less episodic environment," Cramer said.
Cramer ultimately interpreted Palo Alto's breakout quarter as a reminder that the cybersecurity group is still riding a terrific secular wave. It also indicated to him that corporations, which have underinvested in protecting their data, now need an end-to-end solution in order to solve complex cybersecurity issues.
"The sheer number of new customers, and the breadth of them across so many sectors, is a sign that there is much more spending to come," Cramer said. (Tweet This)
Palo Alto might be the winner right now, but Cramer said he thinks there is room for everyone, especially companies like Cisco and IBM if they want to try to expand in what he considers to be the fastest growing area in technology right now.