Shares of CyberArk (NASDAQ:CYBR) recently plunged to a two-month low after the cybersecurity firm followed up a solid first quarter earnings beat with soft guidance. Does this dip represent a buying opportunity, or is it a warning that darker days could be ahead? Let's examine the bullish and bearish cases for the company to decide.

First, some good news...

CyberArk is the market leader in PAM (privileged access management) solutions. Unlike many other cybersecurity players, which shield companies from external attacks, PAM solutions detect internal threats -- like careless or disgruntled employees -- and quarantine affected computers.

A businessman accesses a cloud of user profiles.

Image source: Getty Images.

Research firm Markets and Markets estimates that the size of the PAM market will grow from $922 million to $3.79 billion between 2016 and 2021, due to the ongoing escalation of cyberattacks and data breaches worldwide.

That's why CyberArk's revenue rose 26% annually to $59.03 million last quarter, which beat estimates by $1.2 million. License revenue rose 20%, and its Maintenance and Professional Services revenue climbed 34%. CyberArk has also been expanding its security portfolio with acquisitions. It recently acquired Conjur, a provider of DevOps software.

On the bottom line, CyberArk's non-GAAP net income rose 23% to $10.2 million, or $0.28 per share, topping expectations by five cents. Unlike many other cybersecurity companies, CyberArk is also profitable on a GAAP basis -- partly because stock-based compensation expenses (a major expense for younger tech companies) used up just 9% of its first quarter revenues. During the quarter, its GAAP net income rose 74% to $7.5 million, or $0.12 per share.

Now, the bad news...

Unfortunately, CyberArk's second quarter and full-year guidance fell short of analyst expectations. The company expects about 22% sales growth (at the midpoint) for the second quarter, compared to analyst forecasts for 24% growth. It expects its non-GAAP net earnings to slip about 17%, compared to expectations for a milder 7% decline. CyberArk attributes that bottom line decline to its increased headcount and additional expenses related to the purchase of Conjur.

For the full year, CyberArk expects 24%-25% sales growth, which matches analyst estimates. However, its forecast for a 2%-6% decline in non-GAAP earnings looked weak compared to the consensus forecast for a 2% dip. Those numbers aren't bad, but they indicate that CyberArk plans to spend more heavily to boost its top line growth and widen its moat against potential rivals.

That probably wouldn't be a huge issue if CyberArk's valuations were lower. Its P/E ratio of 61 is much higher than the industry average of 29, and its P/S ratio of 8 is also much higher than the industry average of 5 -- which doesn't leave much room for earnings disappointments.

Could CyberArk get bought out?

CyberArk's stock looks richly valued, but its enterprise value of $1.4 billion is basically pocket change for bigger tech companies. That low price tag has made CyberArk a likely takeover target for any company that wants to become a leader of the growing PAM market.

Check Point Software (NASDAQ:CHKP) was reportedly interested in buying out its smaller Israeli peer in early 2016. That purchase would have complemented Check Point's prior purchases of cybersecurity start-up Hyperwise and smartphone security company Lacoon Mobile Security. However, those rumors gradually faded away, and it's unclear if Check Point will approach CyberArk again.

Other potential suitors could include IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO), which have both been bolstering their security businesses to offset slowdowns in older business units. IBM was reportedly eyeing next-gen firewall maker Palo Alto Networks earlier this year, and Cisco has repeatedly been named as a potential suitor for threat detection service provider FireEye.

Is CyberArk's dip a buying opportunity?

I like CyberArk's business model, and I think that the company still has great long-term growth potential in the PAM niche. I also think that the stock's post-earnings sell-off was an overreaction, since bottom line pressures from expanding the business were expected. I think investors could consider starting new positions in CyberArk at current prices, but they should do so in small increments since the stock remains richly valued and highly volatile. 

Leo Sun owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Check Point Software Technologies. The Motley Fool recommends Cisco Systems, CyberArk Software, FireEye, and Palo Alto Networks. The Motley Fool has a disclosure policy.