Nearly every business, whatever its size or industry, now has a significant IT presence. However, a great deal of a company’s data is sensitive and confidential: stored payment cards, trademarks and patents, customer names and contact information, and more.
Protecting these valuable assets must therefore be a preeminent concern. According to a 2019 study by IBM, the average cost of a data breach has now risen to $3.9 million. What’s more, 60 percent of small businesses now close their doors within 6 months of a cyberattack.
For this reason, the services of cybersecurity businesses like FireEye [NASDAQ: FEYE] have become in high demand. But should investors take the plunge and put their money in FireEye stock? We explore the FireEye stock price forecast in the coming months.
What Does FireEye Do?
FireEye [NASDAQ: FEYE] is an IT security company that provides hardware and software products and services to enterprise clients. Headquartered in Milpitas, California, FireEye was founded in 2004 and currently employs roughly 3,000 people.
Kevin Mandia has served as FireEye’s CEO since June 2016. Mandia was also CEO and founder of the cybersecurity consulting firm Mandiant, which FireEye acquired in 2013.
The company offers a broad range of cybersecurity products and services, including solutions for endpoint protection, email and network security, and threat intelligence. FireEye’s major competitors include Palo Alto Networks, Cylance, Malwarebytes, and Kaspersky Lab.
What are the Risks of Buying FireEye?
First, let’s talk about the bad news when buying FireEye stock.
Shares of FireEye have been in a protracted slump over the past several years. The company’s growth has continued to slow, and quarterly results have continued to disappoint.
In its Q2 2019 report, FireEye suffered a loss of $67.3 million, or 33 cents per share. The company said that these disappointing results were primarily due to three reasons: the costs of migrating its internal data to the public cloud, higher sales commissions, and customers upgrading to FireEye’s new security service from an out-of-date version.
As a result, FireEye lowered its profit forecast for the rest of the year, despite exceeding its own conservative estimates, causing the stock to plunge.
Unfortunately, these poor quarterly results weren’t just a fluke for the company. In June 2019, shares of FireEye hit a 52-week low.
FireEye stock, which was once above $80 at its peak, crashed in May 2014 after the company reported Q1 2014 earnings, and has never managed to recover; the stock now trades below its IPO price.
While cybersecurity is a hot-button issue right now, one big problem with FireEye is that its competitors are simply growing faster. Since FireEye’s transition from a product-based revenue model to a subscription-based one, the company has struggled to improve its top-line growth.
Is FireEye a Buy?
With all that said, could things be turning around for FireEye stock?
The company has continued to grow its business through smart acquisitions of fellow cybersecurity businesses, including the 2013 purchase of Mandiant for $1 billion.
Most recently, FireEye bought the security effectiveness testing startup Verodin for roughly $250 million in cash and stock. FireEye hopes that this latest acquisition will add more than $90 million to the company’s billings over the next two years.
A few industry analysts are bullish on FireEye [NASDAQ: FEYE], believing that the company will be able to break out of its slump in the near future. According to the professional investor community SumZero, shares of FireEye have the potential to double within the next several years.
Analysts at SumZero cite several positive trends about FireEye stock that investors should keep a close eye on. First, FireEye’s operating cash flow has been in positive territory since 2018, as the company has reduced its administrative and general expenses.
In addition, IT research firm Gartner projects that the global IT security market will grow by 8 percent in the next few years, from $124 billion in 2019 to $170 billion in 2022. If it plays its cards right, FIreEye is in a good position to capitalize on this growth.
The question is if FireEye is truly able to outperform its rivals and benefit from the coming cybersecurity surge.
FireEye’s competitors like Palo Alto have made equally smart acquisitions, and are also spending much more on research and development – a critical investment in a technology-heavy industry like cybersecurity.
FireEye Stock Price Forecast: Summary
FireEye [NASDAQ: FEYE] is an example of a stock that has never quite seemed to achieve its full potential.
Despite operating in a profitable industry and continuing to grow its business over the past several years, FireEye stock hasn’t been able to return to the heights that it reached soon after the company’s 2013 IPO.
Of course, that hasn’t stopped analysts and investors from placing their bets on shares of FireEye, hoping that this will be the year that things finally turn around. While shares of FireEye will likely increase as the company improves its lot, its competitors seem much better positioned to take advantage of the cybersecurity boom.
For these reasons, we don’t recommend that investors purchase shares of FireEye until the company proves that it’s capable of sustained growth.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.