Recently, FireEye (FEYE) hasn’t been so secure for investors. Since mid-June, the shares have lost almost 40% of their value.
But despite the selloff, the company remains one of the top operators in the cybersecurity space, which is incredibly important for CEOs. Furthermore, the need for quality cybersecurity solutions shows no sign of slowing down.
All things considered, the recent pullback provides a nice buying opportunity for FireEye stock.
All in all, the momentum in the core business of FEYE is showing no signs of slacking off. During the latest quarter, revenues surged 56% on a year-over-year basis as the company added 300 new customers, bringing the total to more than 3,700.
According to the company’s earnings presentation, it booked 30 transactions with values over $1 million, and FEYE has also been getting lots of momentum in global markets, with 65% year-over-year international growth.
True, FEYE remains unprofitable but the company has been taking actions to boost margins. Consider that, in its second quarter, the company generated operating cash flows of $39 million.
Buy FireEye Stock on the Drop
So, given all this improvement, it is kind of surprising that FireEye stock has performed so poorly. But of course, the tech sector has taken lots of hits because of the recent market correction. And yes, the highest-flying stocks have been some of the hardest hit.
Despite all this, the fact remains that FireEye has a comprehensive cybersecurity platform, which covers the main threat vectors like the web, email, file storage and networks. But unlike traditional approaches — which rely on identifying signatures — the FEYE system relies on sophisticated real-time, dynamic threat assessments.
However, the company is more than just about top-notch technology. Keep in mind that FEYE includes an elite group of consultants — part of its Mandiant division — that help with data breaches. Some of the customers include Sony (SNE), Anthem (ANTM), Home Depot (HD) and Michaels (MIK).
In other words, Mandiant is a nice source of revenues and a gateway for cross-selling opportunities.
Now, in terms of the overall growth potential, there seems to be little doubt that the cybersecurity market is still extremely hot, which should ultimately help get FireEye stock back on track. According to research from analysts at Bank of America (BAC), the enterprise cybersecurity market is expected to grow from $15 billion in 2015 to about $19.5 billion by 2018.
Oh, and the valuation of FireEye stock is certainly much more reasonable since the selloff, with the price-to-sales ratio at roughly 10. By comparison, Palo Alto Networks (PANW) trades at 16 times sales and CyberArk Software (CYBR) and Imperva (IMPV) both sport price-to-sales multiples of 12.
So, yes, the recent market correction has been brutal. But again, for investors looking at the long term, the opportunities for cybersecurity remain intact. And FireEye stock — with its broad portfolio of applications, unique technology and a much-needed consulting business — is positioned better than just about everyone else.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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