Is It Time to Sell Fireeye's Rally?

2015 was a volatile year for FireEye (FEYE), as the stock appreciated swiftly in the first half, at one-point climbing more than 70 percent for the year, whereas the other half of the year lead to a different consequence. The company lost all of its gains after June, and at present, is down around 12 percent YTD.

However, in February, a huge upgrade for the company ahead of earnings hinted that things may get better for FireEye. After short-term fright post earnings, the company’s shares surge more than 50 percent from their pre-earnings price.

Piper Jaffray's upgrade has helped considerably in the stock gaining such momentum. As per the firm, transition into an on-demand as a service business model can be quite interesting and is the reason that makes FireEye a buy.
It is a type of business model that can robustly promote its revenue growth and lock it in with a stable of long-term, subscription-paying users.

Apart from this, FireEye designed several new products to stab the medium and small business market as well as virtual products to aim the cloud. These new products will be the reason to attract new subscribers and will be the key to recover top-line growth of the company, which after escalating sales more than 150 percent in 2014, came back to 45 percent in 2015.

On the other hand, it was detailed that FireEye’s revenue raised 45 percent. But as per the information from S&P Global Market intelligence, FireEye’s revenue growth in the U.S. was just 38 percent. Therefore, it clearly indicates that international growth is crucial to growth.

At present, analyst following FireEye forecasts that the company will grow its profits at around 20 percent yearly over the next five years. However, if Jaffray is right regarding international sales growing without an equivalent surge in costs, then profit margins could ascend much more as compared to the analyst estimates.

Despite the recent positives, I am still sceptical about the long-term future of the stock. After the recent uptick, I think investors should start booking profits as FireEye is still loosing money at a rapid rate. I recently recommended investors to stay away from the stock, along with recommending traders to buy it, because I am still unsure about the company's long-term prospects. For this reason, I think both long-term investors and traders should use the recent rally to book profits.
Published on Mar 14, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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