Investors who have placed long-term bets on cybersecurity stocks are feeling less secure Wednesday thanks to the weak results pre-announced on Tuesday by Fortinet Inc (NASDAQ:FTNT).
The result? Cybersecurity companies like FireEye Inc (NASDAQ: FEYE) are getting hammered. The selloff, however, could be a blessing in disguise for investors with long-term horizons.
FireEye stock is down more than 2% Wednesday, falling to session low of $12.84, translating to a 12% decline in the past five days. As it stands, FEYE stock has lost 23% in three months, while falling 37% year to date.
As with Fortinet, revenue has been hard to come by for the Milpitas, California-based cybersecurity specialist, which has missed analysts’ revenue estimates in four straight quarters.
But FireEye, which has software that detects cyber threats, protecting corporations with intrusion intelligence and other services, still has tons of room to grow.
With FireEye stock down some 60% from its 52-week high, the shares just might have reached their bottom. The fact that Fortinet has triggered the selloff in cybersecurity just lowered the bar for what FireEye needs to do to outperform.
What This Means for FEYE Stock
The company is projected to lose $1.30 per share in the current fiscal year and lose another 55 cents per share in fiscal 2017. Indeed, losing the money next year is nothing to write home about. A per-share loss of 55 cents, however, is a drastic improvement from fiscal 2016.
At the same time, the decline in FEYE stock should revive buyout talk, which has triggered various spikes in FireEye shares over the past couple of years.
Companies like Cisco Systems, Inc. (NASDAQ: CSCO), and even Fortinet, pop up as possible suitors. In the case of Fortinet, it would seem that it needs FireEye’s technologies now more than ever. FireEye has made strategic acquisitions of its own to strengthen its position, including its January deal for iSIGHT Partners — a cyberattack-prevention specialist that focuses on preventing attacks before they happen.
ISight has the ability to deploy intelligence agents in overseas markets to resolve threats. FireEye has also picked off Invotas, a company that specializes in improving response times after attacks. Thanks to the constant flow of hacking-related headlines, causing panic among both businesses and consumers, betting on cybersecurity stocks is a well-placed strategy.
With FireEye’s strong portfolio of cybersecurity assets, FireEye stock is poised to rebound and demonstrate that Fortinet’s problems are their own to deal with.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
