FEYE Stock: Is FireEye a Screaming Bargain?

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FireEye (FEYE) stock jumped higher by 2.4% on Friday, giving it gains of more than 8% for the final three sessions of last week.

FEYE Stock: Is FireEye a Screaming Bargain?With FEYE stock down almost 40% for the last three months, many investors might think that last week’s gains suggest that FEYE is a screaming buy, with FireEye stock reaching a bottom.

However, this assumption is not accurate.

Why FEYE Stock Is Rising

One catalyst that contributed to FireEye stock’s rally last week was data from IDC.

The report showed that FEYE is the unchallenged leader in the specialized threat analysis and protection market. According to IDC’s data, this market was worth $930 million last year, and FEYE’s 37.9% market share is more than seven times greater than its next closest competitor.

Given that the market hardly existed five years ago, this leading presence is considered a positive for FEYE — a reason for investors to be bullish. However, this assumption is false, and supports my previous argument as a reason to sell or avoid FireEye stock and buy Palo Alto Networks (PANW) instead.

What Is FireEye?

First and foremost, IDC’s data suggests that $353 million of FireEye’s $425.6 million in revenue last year, or 83%, came from the specialized threat analysis and protection market. What this means is that FEYE is the go-to security vendor when all hell breaks loose.

So, when hackers access customer information from 56 million credit and debit cards at Home Depot (HD), or when 76 million JPMorgan (JPM) customers are affected by a security breach, FireEye is the firm that companies call. FEYE specializes in advanced persistent threats, or finding a source for the most complicated cyber attacks in today’s time. FEYE can quickly identify the threat by searching for irregularities in the two million-plus virtual platforms that are always active.

The problem is that FEYE is only getting those calls when the damage is already done, and is not yet known as a preventative company. While it does offer preventative services, its core product aims to identify threats quickly, thereby presenting the source of a problem.

Obviously, this can only be done after an attack has occurred.

FEYE Cannot Meet High Expectations

In 2014, FEYE’s after-the-fact approach to cybersecurity drove revenue much higher due to the volume of high-profile attacks. However, 2015 has been much quieter, and as noted in that previously article, it is because corporations are investing in preventative security software, like firewalls and such.

This fact was put on display during FEYE’s last quarter, as its billings increased just 28% and its product revenue was up only 24% year-over-year.

While FEYE is clearly growing fast, it is not growing fast enough to satisfy Wall Street’s high expectations, or the expectations that FEYE management set for itself.

The Logic Behind Selling FEYE Stock

All things considered, IDC’s research was seen as a positive for FireEye stock, but in reality, it only unveils the company’s lack of diversification.

The Global Cyber Security market is worth $74 billion right now, and is expected to grow at a compound annualized rate of nearly 15% through 2022, becoming a $224 billion market. Therefore, it would seem that FEYE would still have growth opportunities galore.

Unfortunately, FEYE’s market share right now compared to the industry is irrelevant, and chances are the big money will be spent to prevent the big attacks, not learning who attacked after the fact.

This logic is why FireEye stock is not a good investment opportunity, much less a “screaming bargain.”

As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/fireeye-bargain-feye-stock/.

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