FireEye Inc (NASDAQ:FEYE) appears to have been revitalized, fueled partly by the apparent enthusiasm for its enhanced FireEye-as-a-service offering. The company appears to be moving toward profitability, and the valuation of FireEye stock is at bargain levels. Meanwhile, the stock should be helped by the continued prevalence of hacking and President Trump’s decision to prioritize IT security.
Investors should buy FEYE stock at current levels. Here’s why.
On May 2, the company reported a first quarter per share loss of 9 cents, versus the consensus outlook of a 26 cents per share loss. Its revenue came in at $173.7 million, against the consensus outlook of $163.7 million. FireEye’s subscription and services revenue rose to $150 million, up from $134.26 million during the same period a year earlier.
FEYE’s operating margin rose by more than 36% versus the same period a year earlier, and its non-GAAP losses fell by more than $60 million year-over-year to less than $14 million. The company added 237 new customers last quarter, including 18 of the largest 2000 companies in the world, and it indicated that its current initiatives will enable it to become profitable.
New Hope for FireEye Stock?
It’s clear from FireEye’s results, especially the increase in its subscription and services revenue, that the expansion of its FireEye-as-a-service offering, announced a little over a year ago, is being well-received by enterprises.
Meanwhile, there are signs that its new products, Helix and NX, are attractive to enterprises. Helix centralizes all of the company’s “network and endpoint protection technologies” into a single console that “centralizes alerts from FireEye solutions, and from all third-party products or nearly all third-party security products.” HX is “an advanced malware detection system.”
FireEye said that it closed four deals in four different vertical markets for Helix on the last day of last quarter, which was the first day that the product was available. Two of the four customers had not previously used any of the company’s products or services before. Furthermore, the Helix transactions directly led to multiple, additional product sales. And most importantly, the company said that Helix and NX would significantly boost its growth in the second half of the year.
Meanwhile, FEYE stock should be helped by the continued high prevalence of hacking and the significant damage it can inflict. In 2016 and early 2017, CNN, World Wrestling Entertainment, Inc. (NYSE:WWE), hundreds of Twitter Inc (NYSE:TWTR) accounts, and the Democratic National Committee were hacked. In 2015, the federal government’s Office of Personnel Management and 2.5 million PlayStation and Xbox gamers were hacked, although the video game hacks were not discovered until early 2017.
Bottom Line on FEYE Stock
When the DNC was hacked, embarrassing information was released to the public, while the personal information of millions of people were stolen through the OPM and video game hacks. Given this environment, many enterprises are going to look to short up their IT security defenses. FireEye stock should be able to benefit from this trend.
One organization that’s definitely looking to improve its IT security system is the U.S. government. The Trump administration is developing an executive order on cybersecurity that is supposed to enhance the government’s IT security systems.
Under the executive order, agency heads will reportedly be charged with mitigating the risk of cyber attacks. Enhancing agencies’ IT security systems will certainly help accomplish that goal. Given the fact that FEYE already does a great deal of business with the federal government, it’s well-positioned to benefit from that trend.
Finally, the valuation of FireEye stock appears to be well below most other IT security companies. FEYE stock trades at a price-to-book ratio of just 3, versus 4.9 for Check Point Software Technologies Ltd. (NASDAQ:CHKP), 12.3 for Palo Alto Networks Inc (NYSE:PANW) and 7.8 for Fortinet Inc (NASDAQ:FTNT).
Given this low valuation and the fact that FireEye is clearly gaining traction, FEYE stock is definitely still a bargain at current levels despite its recent rally.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
