Investors have been feeling much more secure about FireEye Inc (NASDAQ:FEYE) lately. A key has been a better-than-expected Q1 report. As a result, FEYE stock is up about 27% since early May.
![FEYE Stock: FireEye Inc (FEYE) Stock Should Still Make You Nervous](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
But can the momentum continue? Or should investors look to take some profits?
Well, to answer this, it’s first important to realize that CEO Kevin Mandia has certainly done a great job. But then again, before taking the helm of FEYE in May 2016, he already had over 20 years’ experience in the cybersecurity market. In terms of education, he got a B.S. in computer science from Lafayette College and an M.S. in forensic science from The George Washington University. He then went on to serve as a special agent of the Air Force Office of Special Investigations (AFOSI) and co-wrote an influential book on cybersecurity.
All this prepared him to launch his own company, called Mandiant. From 2004 to 2013, he was able to reach over $100 million in revenues and build a team of more than 500 employees. He would then sell Mandiant to FEYE for $1 billion.
Since Mandia took the post as CEO, he has wasted little time in making fundamental changes. He has revamped the sales team, aggressively cut costs and made strong moves into the cloud.
During his first earnings call, he noted:
“We recognize that these new offerings and leadership teams alone will not be enough to achieve our goals, as we transition to balanced growth and profitability as an organization. We must simplify our business and operate more efficiently.”
FEYE Stock and the Turnaround
It’s important to keep in mind that the process is still in the early stages. In other words, there’s a chance that Wall Street has gotten overeager with FEYE stock. During June, the short interest in FEYE stock dropped from 33.27 million to 29.89 million, providing a nice source of demand for the shares (when short sellers cover their positions, they need to purchase the shares).
Meanwhile, the company still must deal with the intense competitive environment. Just some of the fierce operators include Proofpoint Inc (NASDAQ:PFPT), Palo Alto Networks Inc (NYSE:PANW), Fortinet Inc (NASDAQ:FTNT) and Check Point Software Technologies Ltd. (NASDAQ:CHKP). More importantly, these companies have already made the transition to the cloud and are moving on to next-gen approaches. If anything, FEYE is really playing catching up — and this is not a good place to be in the tech world. The company has really been serious about the cloud for about a year or so.
Now another issue with FEYE stock is that the company must deal with the inevitable volatility in the sales channels. A delay of a couple deals can make a material difference with the financial results.
For example, regarding the latest earnings report, there were four large deals that were closed on the last day of the quarter. If this did not happen, FEYE stock would have likely suffered a drop. And yes, the buzz would have been that the company was having major troubles with its turnaround!
Bottom Line On FireEye Stock
There’s little doubt that cybersecurity is a key priority for companies as the threats continue to get worse and worse. But this does not mean that FEYE will necessarily rise along with the industry. When it comes to mission-critical technologies, customers want to focus on the leaders.
So FireEye’s missteps and blunders over the years will continue to have an impact. Customers will provide even more scrutiny when checking out the applications, which means longer sales cycles.
In light of the risks, it’s probably best to be cautious on FEYE stock — and to wait until after more than just one earnings report to get a sense if the turnaround is for real.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.