FireEye Inc (FEYE) shares have shed 5% in the last five trading days, continuing the stock’s and cybersecurity sector’s downward slide that began this summer.
Since mid-June, FEYE stock has lost nearly half its value. Shares are now worth less than $29 a share. While that’s still more than 40% above the initial offer price for FEYE stock back in 2013, it’s still way off the stock’s all-time high north of $85.
For starters, the cybersecurity sector was pounded recently when Fortinet Inc (FTNT) posted some shrugworthy guidance. The disappointment was likely driven by the fact that the sector was broadly overbought; investors smelled the mega-trend but couldn’t sort through the noise.
That’s the trouble with super technical sectors like cybersecurity. It’s easy to understand that there are cyber attacks happening left and right, and why that might seem to benefit FEYE and FTNT on the face of it — but it’s far harder to predict which technology is best at stopping them and best at producing a beefy and consistent bottom line.
Which brings us back to FEYE stock. Is it a bargain after the recent beating?
Let’s start with the basics. FireEye provides automated, real-time threat forensics and protection via its “purpose-built, virtual machine-based security platform.” The company has over 2,500 customers across more than 65 countries, including over 150 of the Fortune 500 — a solid base that seems to be a vote of confidence for the technology.
Another vote of confidence comes from the company’s impressive billings and revenue growth. In the second quarter, for example, billings expanded by 57% year-over-year, while revenue improved 56%. But while cash flow from operations improved, FireEye’s net loss actually widened year-over-year.
On a per share basis, FireEye’s losses are expected to narrow for the current quarter (results due Nov. 4) and for the full year. A loss of $1.74 per share of FEYE stock is expected for 2015 — two cents less than analysts expected three months ago and about a quarter less than the loss a year ago. Things get a little better in 2016, too, with the full-year loss expected to narrow to $1.38 per share.
Things would be even better if earnings were actually positive, not merely less negative. That’s the case for cybersecurity rivals like CyberArk Software Ltd (CYBR), Check Point Software (CHKP) and Palo Alto Networks Inc (PANW). Even these profitable companies, Checkpoint aside, have been pounded over the last three months.
If we’re strictly focusing on sales, FEYE stock trades at a discount to peers. The stock goes for just 8 times sales, while CYBR is trading for a multiple close to 11, CHKP’s is north of 9 and PANW goes for 14 times its revenue. But even that is only a “bargain” in the context of the cybersecurity industry and the hype surrounding it.
Meanwhile, that hype can actually be a double-edged sword. Piper Jaffray recently downgraded FEYE stock, causing investors to head towards the exits. The downgrade was “primarily due to increasing competition,” as The Street reported.
“We are also concerned with conflict within the channel and recent executive turnover. With FireEye set to begin lapping more difficult comparisons, we believe the factors noted above could make these comparisons even more difficult,” the analyst added.
Add it up and FEYE stock is a beaten-down name in a rising but overbought — and increasingly competitive sector. While “earnings” are moving in the right direction theoretically, they remain far from actually being earnings.
Translation: FireEye is more of a gamble than a bargain at this stage in the game. Place your bets accordingly.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.