Growth Stocks: FireEye

By the end of 2020, cybersecurity company FireEye (FEYE.US) reached new highs of the last 6 years. However, investors were unable to sustain the rally in 2021 and eventually fell back to $ 18 per share. That said, it should be noted that the stock is underperforming the benchmark market, the Nasdaq Technology Index (US100) despite posting impressive results. In such a situation, it might be a good idea to take a closer look.

Bullish Flag Formation on D1, targeting $ 40. Source: xStation5

In the fourth quarter of 2020, the company's revenue increased 5% year-on-year to $ 248 million. However, the best argument in favor of FireEye's stock is perhaps the fact that the company expects its revenue to grow even further in 2021. FireEye expects its full-year revenue in 2021 to grow by around 6% this year and are in the range of $ 990 million to $ 1,010 million. In addition to that, the company also expects its earnings per share to reach $ 0.36 which shows a year-on-year increase of up to 16%.

Sustained growth QoQ, Source: Factset, FireEye

This momentum in FireEye is expected to continue in 2021. There are several catalysts that could increase growth and profitability. Leaving aside the execution problems and a macroeconomic environment of uncertainty that looms over the North American market, the current valuation remains conservative.

In its latest post, the company highlighted several positive trends that will continue to drive growth in 2021. In fact, FireEye noted that the cyberattack on SolarWinds increased the visibility of its business. According to FireEye, the attack affected about 18,000 people, including various government agencies, creating a breach in computer security for the US federal government. FireEye was the company that had the best diligence, speed and effectiveness in responding to the attack and in performing the analysis and counting of damages, the consequences could be disastrous. In his words: “Once we discovered the hack at SolarWinds, we quickly created an algorithm to detect it with our products, thus protecting customers and demonstrating the power of our innovation process. We also share all the details of its implementation at SunBurst as well as the attackers' methodology, publicly providing the cybersecurity community with the necessary knowledge to protect against future attacks. "

Comparing FireEye within the sector, we can highlight its small size. It's guide could make it come into profit by 2021 and its ratios can be studied with respect to the others, so far, we can only compare its fundamental bases. Source: Factset

As a growth company, FireEye also reported impressive long-term growth indicators. The fourth quarter turned out to be the highest turnover quarter in history. Approximately 66% of recent turnover comes from high growth divisions. The Platform, Cloud Subscription and Managed Services category posted billing growth of 36% in the fourth quarter and FireEye expects the pace of billing growth to continue. These revenues improved expectations from $ 237 million to the $ 248 million finally released.

FireEye noted that it has seen an increase in demand for its consulting services after the Sunburst attack. This is the main indicator of future growth prospects within and outside the professional services segment.

Beyond growth, FireEye has also seen better profit margins in 2020. The profitability factor is important for two reasons:

• FireEye needs to increase cash flows at a faster rate to boost its liquidity and debt profile.
• Newcomers to cloud security have a better margin profile as their 100% subscription business model gives them better gross margins. Currently, FireEye has two major handicaps against gross margins, namely: professional services and security devices (hardware).

In the next results publications we will be able to see if they meet their income guide, next May 4th.

Darío García

Analyst XTB Spain