Buyer Beware: You CANNOT Count On FireEye Inc (FEYE) Stock!

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Earlier this year, FireEye Inc (FEYE) stock was being praised as a one-of-a-kind, market-walloping, hack-preventing growth stock. Turns out most of those descriptors are entirely wrong.

cybersecurity-stocks-feye-stockWhen at its peak above $55 per share in mid-June, FEYE stock was up an incredible 71% in 2015. And it wasn’t alone: Fellow cybersecurity leaders Fortinet Inc (FTNT) and Palo Alto Networks Inc (PANW) were both sitting on 40%-plus gains. Meanwhile, the S&P 500 was up a measly 3%.

For investors, four months have never felt so long. FEYE stock is down more than 40% since its peak, and shares are now barely in the black for 2015.

What gives? Well, in hindsight, there were a few warning signs surrounding FireEye stock. The good news is that investors can still get ahead of tomorrow’s bears and sell today, avoiding additional losses.

Beware The Trendy Spec With Management Issues

There are two things about what type of stock FEYE is that investors should recognize in the future as being incredibly risky:

  1. FireEye is trendy: The increased attention heaped upon cybersecurity stocks this year resulted from a real trend — a trend borne of necessity. With large companies, universities and even the U.S. government all falling victim to cyberattacks in 2015, large organizations are spending more on preventative solutions. That can be great for investors who got in early, but those who buy stocks on headlines alone are rarely rewarded.
  2. FEYE is a speculative stock: FEYE probably still would’ve been a fairly risky investment if it was an immensely profitable company that rallied as cyberattacks dominated the headlines. Unfortunately, FireEye is wildly unprofitable. In 2014, the company lost $443 million on $425 million in revenue. That makes it nearly impossible to accurately value, with much of its valuation dependent upon profits three or four years down the road. That’s why it’s speculative.

The third development that should’ve sent investors running for the exits was something that happened to FEYE stock…

3. FEYE saw its CFO suddenly leave: True, it’s not that FireEye stock, per se, committed this act. But if we crudely think of a company as a collection of individuals, we can say that in some form or fashion the company is changing when one of its top execs leaves. The CFO’s sudden departure was such a shock to Wall Street that FEYE stock fell 5% on July 31, the first day of trading after reporting a blowout second-quarter.

This is a particularly ugly trifecta of red flags in any market. But in Q3 of 2015 — the worst quarter for the stock market since 2015 — it would prove to be an uber-deadly combo that managed to erase 70% gains in just a few months.

Unfortunately, FEYE stock is still not worth the risk. Today analysts at Piper Jaffray gave FireEye the kiss of death, downgrading shares from “overweight” to “neutral” and slashing its price target from $60 per share to $37.

Citing increased competition and “executive turnover,” today’s downgrade can alternatively be thought of as a tabloid headline of sorts:

Wall St Turns Sour on FireEye: ‘We Don’t Like it Anymore’

That’s clearly borne out in the recnt price action, with FEYE stock off more than 5% since Monday — despite a broad-based market rally in which nearly 80% of stocks advanced.

If you really must be invested in a cybersecurity pure-play in this choppy market, opt for FTNT — which is actually profitable — or the PureFunds ISE Cyber Security ETF (HACK), which gives you diversified exposure to cybersecurity names.

FireEye, on the other hand, might very well burn you.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/buyer-beware-you-cannot-count-on-fireeye-inc-feye-stock/.

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