Ride FireEye Inc (FEYE) Momentum All the Way to $30

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It’s a crazy notion given my last article about FireEye Inc (NASDAQ:FEYE) suggested the cybersecurity stock had more work to do if it wanted to get out of the teens, but here we sit three weeks later with FEYE stock up 21% in the last month and 43% year to date through September 20.

The momo train has left the station. It’s anyone’s guess when the roll it’s on comes to an end, but despite some glaring weaknesses, FireEye might be turning the tide from a speculative investment to a buy-and-hold moneymaker.

fireeye feye

Note: I said “might.”

As I said previously, FireEye needs to put a lot more meat on the bone if it wants a seat at the adults’ table.

“Going from money-loser to money-maker in a competitive marketplace isn’t easy. That said, FireEye has upped its full-year revenue guidance and expects its Helix platform to grow its customer bases,” I wrote August 30. “At this point, it’s hard to see FEYE stock slipping much more until it fails to deliver slower revenue growth and a lower cost structure.

“It won’t see $20 in 2017, but if business keeps improving, 2018 is still very much on the table.”

So, it appears I was right about the first part while the second part is still very much in play. What FireEye does in the third quarter—it announces November 1—goes a long way to whether I’m right about the second part.

How FireEye Stock Hits $30

The only possibility in my estimation to get there by the end of 2017, would be if it were to make money on a non-GAAP basis in the third quarter; that’s not going to happen. FireEye’s own outlook calls for a non-GAAP loss of at least six cents in Q3 2017.

That said, the momentum it’s on could still carry it higher than $20 between the beginning of November and the end of the year—but it’s got to have a good report.

FireEye’s last four quarterly reports have averaged an earnings beat of 64%. On two of those occasions, the positive surprises led to a healthy 10%-plus increase in FEYE stock; another led to a big drop and the fourth earnings surprise saw no movement in its stock price.   

It’s hard to know if an earnings beat would have any influence on its share price post-Q3 reporting. I guess we will find out.

A More Sensible Time Frame

InvestorPlace’s James Brumley recently discussed why FireEye’s results, despite the lack of profitability, are moving in the right direction.

Analysts and investors alike, Brumley suggests, are undervaluing CEO Kevin Mandia’s move to make it a reliable revenue generator through Helix, its relatively new cloud-based subscription product.

“Once a customer is in the fold and has perpetual access to an always-updated cybersecurity suite, they tend to stick around. Each new customer FireEye’s sales team adds translates into more recurring revenue without (necessarily) more expenses,” Brumley wrote September 19. “The trick is just achieving enough scale to turn a profit, which most think will start to happen late next year.”

I must admit, I’m one of those old-school investors Brumley refers to, who believes the best investments are with companies that consistently make money. After all, if you’re investing in businesses that have yet to make money, you’re really just a venture capitalist in disguise.

Let me be perfectly clear.

Despite my agreement with Brumley that FireEye is on the cusp of better days, financially speaking, this is still a stock unsuitable for most retirement portfolios, especially those retiring within the next 5-10 years.

If you can’t afford to lose the money you drop on FEYE stock, walk away right now because it’s anything but a sure thing.

Bottom Line on FireEye

It took me some time to come around to FireEye stock and if not for one of its dedicated employees opening my eyes to the company’s potential, I might never have gotten on board.

But here I am, ready to ride the momentum train all the way to $30. Just don’t expect it to happen until late next year or the year after that.

For now, be happy that $20 is a very reachable target.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/ride-fireeye-feye-momentum/.

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