Cyber-attacks are increasing due in-part to the accelerated pace of digital transformation and remote working trends. To combat such attacks, businesses are increasing their cybersecurity spending significantly. While this should benefit many cybersecurity companies, some stocks in this space are trading at lofty valuations. Indeed, Wall Street analysts expect overvalued cybersecurity stocks Zscaler (NASDAQ:ZS) and Qualys (NASDAQ:QLYS) to witness a price pullback in the near term. So, we think these names are best avoided now. Read on.As organizations rapidly adopted the digital ways of doing business amid the pandemic, the need to protect client data and prevent cyber-attackers from gaining access to the system has led to rising investments in cybersecurity infrastructure. According to the Gartner (NYSE:IT) 2021 CIO Agenda Survey, 61% of the more than 2,000 CIOs surveyed are expected to increase cyber/information security investment this year.
Due to the increase in ransomware attacks and growing incidents of cybercrimes, several organizations are spending large amounts on cybersecurity to strengthen their security and protect critical data. The global cybersecurity market is expected to reach $345.4 billion by 2026, registering a 9.7% CAGR from 2021 - 2026.
However, not all cybersecurity companies are expected to benefit from the industry tailwinds. Wall Street analysts believe cybersecurity stocks Zscaler, Inc. (ZS) and Qualys, Inc. (QLYS) are currently trading at price levels that are not justified by their current weak financials and growth prospects. So, it could be wise to avoid these stocks now.