With Shares Down 31% In 2014, Is it Time to Buy FireEye Inc?
In just one year, FireEye went from being one of Wall Street's top-performing IPOs to one of the biggest losers of 2014, with the stock dropping 35%. But nothing has really changed with the company. It still sells software to fight cybercrime, and has great growth prospects ahead. Trading at roughly a third of its 52-week high, FireEye's stock might offer a great long-term investment opportunity.
Cybercrime: The key to FireEye's upside
In the last year, several high-profile security breaches have sparked concern among consumers. First, up to 70 million Target shoppers had personal information stolen by hackers late last year. According to a Bizrate Insights survey, 35% of Target customers said they shop less or not at all at the retailer as a result of the data breach. The incident reportedly had cost Target more than $230 million through the second quarter..
Home Depotexpects to spend $62 million this year to address the hacking of data from up to 56 million payment cards earlier in 2014. Finally, JPMorgan Chase revealed recently that a data breach exposed contact information for up to 76 million households and another 7 million small businesses;its costs are yet to be determined.
Given these high-profile, confidence-crushing, and costly data breaches, it's no wonder that next-generation cybersecurity software has become a hot commodity among Fortune 500 companies. After all, it's better to be safe than sorry.
What makes FireEye a cybersecurity beneficiary?
FireEye's market capitalization topped $10 billion earlier this year. Today, it's at just $4.1 billion. However, the basic reason for investing in FireEye -- increased demand for the best cybersecurity software -- still exists.
FireEye differs from typical security software through its network of more than 2 million virtual machine-based security platforms, which constantly evolve to identify advanced threats that might have gone unnoticed by older technology. This means FireEye's software might find advanced malware to be dangerous when it is identified, or causes harm, on any one of those virtual security platforms.
Once that malware is identified on one platform, the company can alert customers on an entirely different platform, or industry. FireEye can now also remove the threat thanks to its acquisition of peer Mandiant earlier this year for about $1 billion. Mandiant's core business is forensic cyber security, meaning it analyzes the attack, finds the source, and can then remove it.
As a result of this acquisition FireEye can now provide all facets of cybersecurity, rather than simply identifying the threat. Once the threat is identified by FireEye's software, Mandiant's technology and services go into effect, thereby analyzing and removing the threat. In essence, this makes FireEye a one-stop shop for a significant portion of a company's network security needs. Nonetheless, shares of FireEye have fallen rapidly throughout the majority of 2014.
Why invest now?
FireEye might very well one day grow into a company with many billions in annual revenue. But for now, FireEye has 12-month sales of less than $270 million. That makes it a small company, which kind of explains why its stock has fallen so abruptly since being valued north of $10 billion. In essence, FireEye was too expensive.
However, at a $4.1 billion market cap, and with revenue expected to grow 165% this year and 47% in 2015, shares become much more attractive. FireEye trades at just 10 times expected full-year 2014 sales, which is far better than fellow technology growth companies Yelp and Zillow, both of which trade north of 13 times full-year expected sales.
None of these companies are profitable, so revenue is the key metric to monitor -- at least until profits become a priority. Therefore, based on sales alone, FireEye shares looks rather attractive.
Two more things to consider
Two other key metrics regarding FireEye are especially attractive, particularly as it relates to the likelihood of long-term growth.
First, subscription and services revenue as a percentage of total revenue was 45% in 2013, up from 37% in 2012, and 26% in 2011. Like most software companies, FireEye has transitioned from selling software as a product to selling it as a service, locking in subscriptions and ongoing, consistent revenue.
Second, FireEye's renewal rate for expiring subscriptions in 2013 and 2012 was in excess of 90%, which means customers are happy with the service. This might just be the greatest vote of confidence for FireEye's business.
FireEye's stock is not too expensive relative to other high-growth technology companies of similar size. Furthermore, given the volume of cyberattacks in the last year, investors can make an educated guess that Fortune 500 companies will arm themselves with the latest, most advanced security options to prevent a massive attack. Looking ahead, FireEye has a great opportunity to create significant shareholder value over the next year, and beyond.
$19 trillion industry could destroy the Internet
One bleeding-edge technology is about to put the World-Wide-Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party— click here for 1 stock to own when the web goes dark.
The article With Shares Down 31% In 2014, Is it Time to Buy FireEye Inc? originally appeared on Fool.com.Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Yelp, and Zillow. The Motley Fool owns shares of JPMorgan Chase and Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.