Why FireEye, Inc. Shares Popped Today

Is FireEye's jump meaningful? Or just another movement?

May 20, 2014 at 4:44PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cyber-security specialist FireEye, Inc. (NASDAQ:FEYE) jumped more than 10% early Tuesday, then settled to close up around 5% after an analyst reiterated his "buy" rating on the stock ahead of a post-secondary stock offering lock-up expiration.

So what: According to FireEye's Form S-1 filed last month, just over 82.2 million previously restricted shares will become eligible for sale tomorrow upon the expiration of lock-up agreements entered into in connection with FireEye's secondary stock offering in March. 

However, Nomura Securities' Rick Sherlund suggests much of FireEye's weakness is owed to a "rotation out of the high valuation momentum names," and that the stock "may benefit from ... getting past the ... lock-up expiration that has dampened investor sentiment." In addition, Sherlund thinks FireEye can look forward to investor presentations at upcoming conferences "with a strong fundamental story to articulate," and that its already-impressive growth is likely to build the rest of this year as its products gain traction.

Now what: FireEye definitely fits the bill for a "high valuation momentum" name: Nobody expects it to turn a profit anytime soon, and FireEye shares currently trade at a lofty 20 times trailing 12-month sales. This in mind, the timing of Sherlund's call is no coincidence, especially considering other companies' recent lock-up expirations have resulted in steep -- albeit temporary -- pullbacks as the market frets about potential insider selling.

In any case, while I agree investors would do well to look past the expiration and focus on FireEye's long-term story, I'm still not personally inclined to dive into FireEye shares just yet.

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Steve Symington and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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