FireEye: Will This Carnage Ever End?

While cyber security stocks have performed nicely over the last few months, FireEye (FEYE) has failed miserably. The company has lost over 50% of its value since July due to the departure of CFO Mike Sheridan and the company’s timid quarterly earnings report.

In the latest reported quarter, FireEye reported earnings per share of $0.37, $0.08 better than the consensus estimate of $0.45. The company shared revenue of $165.6 million versus the analyst estimate of $167.13 million. Apart from this, the company expects Q4 guidance of $185 million - $190 million, less than the analyst guidance of around $200 million.

The revenue miss spooked the investors as shares lost over 25% of its value in a single trading session.
The reduced guidance further added fuel to the fire as investors fled the stock. FireEye may still be unprofitable, but after the recent massive plunge, the company can be considered a good speculative buy as it has strengthened its presence in the booming cyber security market.

Despite weak performance, the company posted some promising results, with gross margin mounting to 62.6% as well as relatively low operating expenses of $227 million, which ascended 14% year-over-year.

At present, demand for cyber security is growing at a very fast speed. Competition in this sector has also increased. The company’s management imputed the billings’ blunder to weaknesses in Europe as well as drop in both deal sizes and contract length.

In spite of near-term barriers, the company’s long-term growth prospects look great. With the continuous advancement in the cyber security technology, there is huge increment in cyber attacks on firms, government entities, etc. Due to increasing cyber attacks, the need for cyber security is also increasing and given FireEye’s market position, the company should gain traction going forward.

FireEye’s technology appears to be an exceptional, as the company endures to perform very well contrary to its peers in terms of direct product competition. FireEye is also putting efforts to increase the value of its specific transactions. As a matter of fact, the company mounted the value of its sales by more than 70% for new customers, which shows that FireEye’s platform is becoming more popular.

In addition, the company has established a loyal customer base as well. FireEye’s clients are satisfied with its service, as they are renewing subscriptions at high prices. With the entire market still in its nascent stages, FireEye should gain more traction going forward and looks attractive after a 50% drop.

Conclusion

Since FireEye is a growth stock, looking at the company’s fundamentals wouldn’t make sense. Despite the revenue miss and reduced guidance, the company is growing at a rapid pace and is nicely positioned to benefit from the rise in the cyber security market. Looking at the positive, I think the company’s worst days are behind it and investors should accumulate the stock after the recent plunge.

 

 
Published on Dec 9, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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