FireEye Shares Have Been Clobbered -- Is It a Buy Yet?

FireEye fundamentals are extremely strong, but there is little valuation support. Depending on your risk tolerance, it may be worth buying.

Apr 8, 2014 at 11:15AM

Shares of FireEye (NASDAQ:FEYE) have dropped as much as 49% since reaching a peak of $97.35 on March 5. Despite the sell-off, industry fundamentals remain very good, and the integration with Mandiant appears to be progressing well as the company separates itself from competitors like Symantec (NASDAQ:SYMC) and Intel (NASDAQ:INTC). Is this a buying opportunity?

Shares of FireEye were and are expensive
FireEye has been leaving investors breathless since announcing its merger with Mandiant. From a headline perspective, $1 billion is a high price to pay for a company that has only 500 customers, especially when the company writing the check is only expected to make $407 million in revenue, even after the integration. That said, it didn't stop the stock from more than doubling after the two companies formally combined on Dec. 30. But the timing was uncanny. Just two days before the company priced its 14 million-share follow-on offering, the share price peaked. Even after the 49% fall though, the stock isn't cheap. At Friday's close of $50.36, the stock is expensive at 19 times 2014 sales.

The fundamentals are remain very strong.
Forgetting the valuation for a minute, the business fundamentals are strong. Unlike many areas in technology, data security is one of the few that isn't subject to wide seasonal or cyclical fluctuations -- and attacks are increasing in regularity and ferocity. Last year, Target and Neimen Marcus had massive data breaches. This year, the entire Bitcoin currency was nearly wiped out over hacking attacks. The attack on Target led to the CIO being forced to resign.

The Niemen Marcus attack left 1.1 million customers vulnerable, and since that attack, 2,400 of those credit cards were used fraudulently. After Mt. Gox was left vulnerable, a hacker even went so far as to post anonymous customer balances on CEO Mark Karpeles' blog. The problem of data breaches has high costs and isn't going away.

Antivirus vendors such as Symantec and Intel's McAfee have been the way to protect against desktop intrusion, but as attacks become more network-based, funding is being shifted from the traditional anti-virus solutions toward more network-based technology, such as FireEye.

Just this week, the Federal Financial Institutions Examination Council said it had seen a rise in the number of denial-of-service attacks on bank websites. These types of attacks can be a way of distracting the IT personnel when trying to mask attacks in other areas of the system.

The attacks are widespread
The banks aren't the only industry to come under fire, though. Journalists, via state-sponsored hacking, have been another segment of the population over-represented in attacks. According to research provided by two Google engineers, 21 of the top 25 news organizations have been attacked. Forbes, The Financial Times and The New York Times have all come under attack by the Syrian Electronic Army. The New York Times had an especially busy year, also fending off attacks originating from a cyber unit of China's People's Liberation Army.

Unusually strong fundamentals help offset the high valuation
FireEye has been a tremendous momentum stock over the last year that hasn't traded on a consistent multiple of sales. Since profits are still negative, there is no way to value it on an EPS basis. Clearly, this stock isn't for the faint of heart, but after losing nearly half its value in one month, you have to wonder at what point it becomes worth the risk.

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

David Eller has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers