Cognyte Software's FY2026 Guidance Signals Accelerating Growth and Margin Expansion

Subtitle: Strategic Acquisition of GroupSense Drives U.S. Expansion, Undervalued Stock Poised for Multiple Expansion

Cognyte Software (NASDAQ: CGNT) has positioned itself as a compelling growth story in the cybersecurity and investigative analytics space, with its recent FY2026 earnings guidance and the acquisition of GroupSense highlighting strong momentum. The company's 12% revenue growth forecast and doubled Adjusted EBITDA signal a strategic shift toward margin expansion, while the GroupSense acquisition bolsters its U.S. market position. With a robust balance sheet and a stock trading below analyst targets, Cognyte presents an attractive opportunity for investors seeking exposure to AI-driven cybersecurity solutions.

FY2026 Guidance: Strong Top-Line Growth and Margin Leverage

Cognyte's first-quarter fiscal 2026 (Q1 FYE26) results, released on June 11, 2025, exceeded expectations, with revenue surging 15.5% year-over-year to $95.5 million. This outperformance underpins the company's full-year guidance for FY2026: revenue of $395 million (midpoint, ±2%), representing 12% growth over FY2025's $350.6 million. Even more compelling is the projection for Adjusted EBITDA to double to $44 million, up from $22 million in FY2025. This margin expansion reflects operational efficiency gains, driven by software sales growth and higher recurring revenue.

The company's software revenue increased by $6.2 million in Q1 FYE26, fueled by demand for perpetual licenses and subscriptions. Recurring revenue rose 3.2% to $47.2 million, while Adjusted EBITDA more than doubled to $10.3 million. These metrics underscore Cognyte's shift toward higher-margin software solutions and recurring revenue streams, which should further boost profitability in the coming quarters.

GroupSense Acquisition: A Catalyst for U.S. Dominance and Synergies

The May 2025 acquisition of GroupSense, a Virginia-based digital risk protection firm, is a strategic masterstroke. For an initial $4 million plus up to $5 million in earnouts, Cognyte gains access to GroupSense's customer base of U.S. state/local governments and enterprises, along with its advanced cyber threat intelligence tools. This acquisition:
1. Expands Cognyte's U.S. footprint: GroupSense's 11-year track record in federal and state markets complements Cognyte's existing global reach.
2. Enhances AI-driven capabilities: GroupSense's human-machine reconnaissance model integrates seamlessly with Cognyte's AI platform, creating a holistic solution for clients.
3. Boosts revenue visibility: GroupSense's contracts add to Cognyte's already robust Remaining Performance Obligations (RPO), which rose to $597.8 million as of April 2025.

CEO Elad Sharon emphasized the deal's strategic value: “GroupSense's expertise in digital risk protection strengthens our leadership in AI-driven investigative analytics.” Analysts at Evercore ISI have already raised their price target to $10.00, though the stock currently trades at $11.01—suggesting further upside as synergies materialize.

Financial Fortitude and Shareholder Returns

Cognyte's balance sheet remains a key strength. With $102.9 million in cash and no debt, the company executed $9 million in share buybacks during Q1 FYE26, demonstrating confidence in its valuation. The RPO of $597.8 million provides clear visibility into future revenue, while backlog growth (+44 million year-to-date) signals strong demand.

The stock's 35% year-to-date return outpaces cybersecurity peers, but the valuation remains compelling: Cognyte trades at ~14x FY2026E EBITDA, below its historical average and growth peers like CrowdStrike (CRWD) or Palo Alto Networks (PANW).

Risks to Consider

• Geopolitical instability: Cognyte serves law enforcement and national security agencies, making it vulnerable to macroeconomic or political shifts.
• Integration challenges: Merging GroupSense's operations could strain resources, though the companies' complementary strengths mitigate this risk.
• Margin pressures: While Q1 EBITDA growth was strong, sustaining the trajectory will require careful cost management.

Investment Thesis: Buy on Dips, Target Multiple Expansion

Cognyte's FY2026 guidance and GroupSense acquisition form a compelling case for investors. The company's focus on AI-driven solutions, coupled with its U.S. expansion, positions it to capitalize on rising demand for cybersecurity and investigative analytics. With margins doubling and a stock price below analyst targets, Cognyte is primed for multiple expansion as it delivers on its growth roadmap.

Catalysts to Watch:
- June 11 conference call: Highlighted Q1 results and reaffirmed FY2026 guidance.
- Product launches: GenAI-enhanced LUMINAR updates and cross-selling with GroupSense's tools.
- Analyst upgrades: Expectations for upward revisions as EBITDA beats targets.

Recommendation: Buy Cognyte (CGNT) for a portfolio seeking exposure to cybersecurity growth. With a 35% YTD return but still trading at a discount to peers, the stock offers asymmetric upside. A target price of $14–$16 by end-2025 seems achievable, given its margin trajectory and strategic moves.

In a sector where AI and cybersecurity are non-negotiable, Cognyte is building a moat that could make it a long-term winner.