FireEye Inc: After 30% Gains, Should You Buy FEYE Here?

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With the world community rushing toward digitization at a clip rate — as evidenced by the Internet of Things movement and rise of cloud computing — the issue of cybersecurity is front and center. FireEye Inc (FEYE) is finally making waves in the financial markets after a terrible start to the year.

FireEye Stock: After 30% Gains, Should You Buy FEYE Here?

Advances in computer technologies have accelerated human potential, both for productive purposes as well as for nefarious agendas. Cybersecurity firms hope to combat the latter.

But unlike a dead-cat bounce, there’s substantial firepower to the FireEye stock rally.

By all accounts, the demand for defense mechanisms against hacking, online theft and other breaches is at a fever pitch — forecasted to move significantly higher over the next several years.

The international market for cybersecurity solutions was pegged at around $77 billion in 2015, with the figure projected to rise to $170 billion by 2020. That’s should bode well for FEYE and the industry at large.

Already, FireEye scored a major security consultation gig with Bangladesh Bank in its efforts to resolve a cyber heist of at least $81 million. A day after the news, FEYE stock wafted up nearly 5%. More significantly, the Bangladesh Bank case looks like a tough nut to crack. The heart of the matter stems from Bangladesh’s massive stash of foreign reserves, some of which are held at the U.S. Federal Reserve Bank of New York.

Bangladesh Finance Minister Abul Maal Abdul Muhith complained about “irregularities” imposed by the Federal Reserve, which the country alleges led to an unauthorized transfer of $100 million from its foreign reserves account.

According to an unnamed Bangladeshi central banker, however, some of the missing funds were recovered from an account in Sri Lanka, with the remaining loss totaling the aforementioned $81 million.

If anything, such incidents highlights the fragility of cybersecurity protocols in emerging markets. According to renowned software security company Kaspersky Lab, Bangladesh takes the second spot among the countries most attacked by hackers. The problem is that while government bodies invest more in security infrastructures, cyber criminals find ever creative ways to render such defenses useless.

But for FireEye, the dilemma is cynical. If it play its hand correctly, FEYE could expand its business opportunities.

Even more bullish is the fact that it’s not just emerging markets in need of cybersecurity. Over the past ten years, U.S. government agencies spent approximately $100 billion for computer network defenses. For 2016, agencies earmarked $14 billion for protective measures. Across the Atlantic, British companies have found few native Britons to fill vast open positions in cybersecurity roles, thus paving the way for looser work visa rules.

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Source: Source: JYE Financial, unless otherwise indicated

TGT stock in particular took a walloping after headquarters disclosed the breach to the public. Given that the U.S. economy has been sending mixed signals, businesses will be more inclined to services offered by FireEye rather than to risk a devastatingly costly security failure.

In short, FEYE stock is staring at the best of both worlds. It’s in a young and burgeoning industry where strong demand will exist so long as there are criminals — essentially forever — and the company has successfully penetrated the market before the barrier of entry became too steep.

In theory, these factors should help drive FireEye stock in the markets, even to the point of ignoring what is currently a not so great financial picture.

A cursory look at the books would admittedly give any investor some hesitation.

For one, long-term FireEye stock holders have yet to see the company turn a profit, leading to comically poor profitability margins. On the balance sheet, an incurrence of long-term debt to finance FEYE’s ambitions have put its cash-to-debt ratio at an uncomfortably high 1.66. To top it off, its cash flow statement suggests management needs to do a better job managing its capital expenditures.

There’s no denying that FEYE stock is a speculative opportunity. Year-to-date, FireEye stock is down 16%; and since its initial public offering, early birds’ portfolios have been neatly cut in half.

That said, FireEye stock is up a whopping 50% in the past month. There’s certainly some technical factors in play, as FEYE was one of the more shorted stocks in the markets. As the weaker bears cover their positions, that is nearer-term bullish for FireEye.

More importantly, you have to look at the future of cybersecurity. Like the giant pharmaceuticals probably say behind closed doors, the money is in the care, not the cure.

For security firms like FEYE, there will never be a one-size-fits-all solution for cybercrime. If somebody can build it, somebody else can breach it. This yin-yang battle almost certainly means FireEye stock will at least have the chance to make serious gains off of a recurring demand in cybersecurity.

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

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/fireeye-stock-feye/.

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