Is Now the Right Time to Buy the Commvault Dip?
Key Points
Commvault trades at less than 5 times its annual recurring revenues; competitors like CrowdStrike trade at much higher multiples.
Commvault is set to benefit from the growing need for cybersecurity as the use of AI expands.
Most of the stock's decline over the past year was driven by soft guidance and its formerly high valuation, but both of those concerns are in the rear-view mirror.
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When most people think of cybersecurity stocks, they think of the big names like CrowdStrike (NASDAQ: CRWD) and Palo Alto Networks (NASDAQ: PANW). Smaller players like Commvault (NASDAQ: CVLT) don't receive as much attention, but based on its recent results, it warrants a closer look.
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Commvault continues to build on its annual recurring revenue
In its fiscal 2026 fourth quarter, which ended March 31, Commvault reported $1.11 billion in annual recurring revenue (ARR), which was up by 21% year over year. Weighed against its $5 billion market cap, the company is valued at less than 5 times ARR.
Meanwhile, CrowdStrike reported $5.51 billion in annual recurring revenue in its fiscal 2027 Q1, which ended April 30. Relative to its $170 billion market cap, that gives CrowdStrike a much higher valuation of over 30 times ARR -- even though both companies have similar growth rates.
Commvault is expecting its strong growth to carry over into its fiscal 2027. The cybersecurity company reported $1.18 billion in fiscal 2026 revenue and projects about $1.3 billion in fiscal 2027 revenue at the midpoint, which would be a 10% year-over-year improvement.
The company has a good history of beating its guidance, and the tailwinds from growing cybersecurity's role in the AI build-out can further support that trend. Commvault even beat revenue and EPS expectations for its fiscal 2026 Q4.
The drop looks extremely overdone
Although Commvault has solid fundamentals, its stock is down by almost 40% over the past year. It also lost about 40% of its value from January through early April this year, but it has recovered almost all of its year-to-date losses.
The combination of soft guidance for its fiscal Q3 2026 and its previously high valuation triggered a steep drop in the stock price. Now that Commvault has beaten that soft guidance and set the stage for respectable revenue growth in its fiscal 2027, the stock may deserve a higher price.
Commvault is well positioned to benefit from cybersecurity tailwinds, something that CEO Sanjay Mirchandani hinted at during the company's fiscal 2026 earnings call.
"In fiscal 2027, the rise of AI will create more data and more risk -- which in turn increases demand for our platform's trusted protection, governance, and recovery capabilities," Mirchandani told investors. "We believe we are well positioned to deliver profitable growth through new and expanding customer relationships."
Commvault trades at a reasonable valuation on a price-to-ARR basis compared to other cybersecurity stocks. It's also profitable, and any revenue growth acceleration will make this prolonged dip look like a compelling long-term buying opportunity.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
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