Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



FireEye Traded Higher After Lock-Up, So Now What?

FireEye's (NASDAQ: FEYE  ) enormous lock-up expiration threat turned out to be a surprising blessing in surprise, as the stock accumulated gains of 11% on the day of its expiration, combined with the two days prior. Clearly, FireEye shares followed Facebook's (NASDAQ: FB  )  lead and, most recently, Zulily (NASDAQ: ZU  ) , as insiders and institutions saw more value in holding shares. Nonetheless, investors should now ponder what happens next?

An unlikely expiration reaction
On Wednesday, 68% of FireEye's total shares outstanding became eligible for sale, per its lock-up expiration, which gives insiders and some institutions their first opportunity to cash out. It seemed likely that shares would fall, especially given the company's 21 times sales valuation multiple. Instead, shares rose more than 2% on nearly triple the stock's normal daily volume.

Essentially, FireEye's unexpected reaction follows a trend witnessed among some momentum stocks. Most recently, Zulily soared by double-digits on May 14, when almost 90% of its shares outstanding were available for sale. Given its near-40% stock loss in the prior month, investors assumed it would fall, although it didn't. Furthermore, Facebook was the first lock-up expiration surprise, as it rose 13% from near all-time lows in 2012, when 40% of its shares were able to be sold.

Notably, each of these three stocks was trading at losses of more than 50% from 52-week highs at the time of its lock-up expiration, which might have, consequently, influenced insiders and institutional investors not to sell shares. Nonetheless, each was equally surprising.

Should you now buy FireEye?
FireEye's feared lock-up expiration is now a thing of the past, which naturally sparks the question of whether now is time to buy both FireEye and Zulily.

Looking back at Facebook in 2012, following its expiration, the company's stock price was barely above $23 (seven months later). It wasn't until July 2013 that Facebook shares soared beyond the mid-$20s and north of $30, where they have since remained. The catalyst: Facebook announced second-quarter earnings, where revenue growth accelerated to more than 60%, up from a prior mid-30% growth rate, as mobile advertising sales finally saw some acceleration.

Fundamentals are what set Facebook's stock free, not the lockup expiration. Investors must keep in mind that, for FireEye and Zulily, the expiration has passed without an enormous stock slide, but the ability to sell shares still exists, meaning there are now more potential sellers than buyers. Thus, while investors can look to FireEye's stock chart to see declines from nearly $100 to $31, they must also remember the company trades at more than 20 times sales and spends nearly $1.20 in operating costs for every $1 of revenue it earns. Hence, FireEye is not cheap, by any means.

Final thoughts
With all things considered, it's unlikely that FireEye will see a return to enormous stock gains behind the lockup expiration. The stock may see a temporary boost, but long-term, the company remains expensive with too many questions surrounding margins and increased competition from big tech.

However, for long-term investors, Zulily -- at 5.5 times sales with consistent profits -- looks attractive. Like FireEye, the expiration alone will not slingshot it to new highs, but as fundamental growth persists and questions of spending become less relevant, it becomes a good company whose stock will eventually follow its fundamental performance.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2969636, ~/Articles/ArticleHandler.aspx, 9/1/2015 2:29:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated Moments ago Sponsored by:
DOW 16,109.06 -418.97 -2.53%
S&P 500 1,918.83 -53.35 -2.71%
NASD 4,660.82 -115.69 -2.42%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 2:13 PM
FEYE $36.96 Down -0.82 -2.17%
FireEye CAPS Rating: *****
FB $87.56 Down -1.87 -2.09%
Facebook CAPS Rating: ***
ZU $17.48 Down -0.28 -1.55%
Zulily CAPS Rating: **