Cybersecurity software firm FireEye Inc (NASDAQ:FEYE) went public in September 2013 at $20 per share. It quickly rocketed up to $97 per share within seven months of its IPO, but it’s been downhill ever since.
Will anyone other than former CEO David DeWalt ever make money on FireEye stock? More importantly, will FEYE stock ever get back to $20?
That’s the million-dollar question and a big reason why investors keep hanging around this truly disappointing stock. First, a little backstory on FireEye stock.
In March 2014, FireEye did a secondary offering of its shares immediately upon the 180-day lock-up period expiring at $82 per share. The company received $444 million from the sale of 5.6 million newly issued shares, while existing shareholders pocketed $669.6 million from the sale of 8.4 million shares.
DeWalt was among the selling shareholders; he made off with $38.6 million from that secondary offering, a pretty good bonus for just 16 months in the top job.
Two months after the secondary offering, FireEye announced a first-quarter result that included a $101.2 million loss on $74 million in revenue. Worse, it projected that it would lose at least $2.10 per share in fiscal 2014, its second downward revision of its annual earnings.
Investors, not surprisingly, took the news hard sending FireEye stock down 22% in a single day of trading. Brian Kelly, an investor who often appears on CNBC’s Fast Money program, lambasted DeWalt at the time for selling shares so close to announcing poor earnings.
“Now you’re coming to us saying everything’s fantastic, everything’s great,” Kelly said to DeWalt. “Why were you selling? You’ve lost credibility with me. How do you get that back from Wall Street? That’s why the stock is down 22% today. Nobody believes you anymore.”
In case you’re wondering, FireEye delivered a 2014 loss of $3.12, $1.02 more than DeWalt was projecting halfway through its 2014 fiscal year. In May 2016, with FireEye’s business still losing boatloads of money, DeWalt stepped aside as CEO to become its executive chairman, replaced by Kevin Mandia, whose company FireEye acquired for $1 billion in January 2014.
If it were me, I would have been out of FEYE stock as soon as the company made it clear that DeWalt was sticking around in any capacity. Since making the change, FireEye stock is down another 20% through Jan. 23.
Forget $20. Investors ought to be asking themselves whether single digits are in the cards in 2017.
Recently, InvestorPlace writer Tom Taulli examined the pros and cons of owning FireEye stock. Taulli concluded that despite losing money, FEYE stock is very cheap compared to some of its peers. Considering the growth potential of cybersecurity, Taulli considers FireEye stock to be a good value play despite consistently losing money.
Here’s my take:
One of the peers Taulli compares FireEye to is Israel-based cybersecurity solutions firm CyberArk Software Ltd (NASDAQ:CYBR) whose price-sales ratio is three times higher.
While that’s true, it’s important that investors understand that CyberArk has consistently grown its top and bottom lines over the past five years and has consistently made money during this period.
In its most recent third-quarter report delivered Nov. 3, 2016, CyberArk Software revenues grew 37% year-over-year to $55 million. Sure, operating income was flat at $8.1 million, but on a non-GAAP basis it increased 28.8% year-over-year to $14.3 million.
So from where I sit, you can own a company that makes money on a consistent basis with lots of cash in the bank, or you can own one that’s likely to lose more than half a billion dollars in fiscal 2016.
To me, FireEye appears to be more a “value trap” than a “value play,” but I’m not technologically savvy. Will FireEye stock get back to $20? It could. While we’re throwing out predictions, the Cleveland Browns could also win the Super Bowl. I certainly wouldn’t make that bet no matter the odds.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.