Investors assume some measure of risk with the purchase of any stock. However, some stocks are more risky than others. For example, aggressive growth stocks often face wild swings in share price based on a single quarter’s results or market challenges, among others. Additionally, fundamental valuation methods such as price-earnings (P/E) and price-to-sales ratios go out the window.

Others, including FireEye (NASDAQ:FEYE), face another type of risk: buying on the assumption that its restructuring efforts will continue in the coming months and years. Pundits and investors seem to think CEO Kevin Mandia and team can keep the ball rolling: FireEye’s stock price is up 34% in 2017, despite anemic top-line growth.

Up close picture of networking cables.

Image source: FireEye.

Optimism breeds more optimism

Much of this year’s stock run-up came after FireEye’s better-than-expected first-quarter results on May 2. FireEye started the year with revenue of $173.7 million and billings of $152.4 million, both beat guidance but were only a 3% gain and an 18% decline year over year, respectively. Based on FireEye’s 30% jump in share price since early May, it appears investors liked what they saw.

As last quarter demonstrated, Mandia’s promises of a more streamlined FireEye with an eye toward cloud software subscription sales was more than just CEO-speak. FireEye shaved 29% off its operating expenses compared to a year-ago, which boosted margins and cut its per-share losses by more than half, to $0.48 compared to 2016’s $0.98 a share.

Product sales sunk 30% for the quarter, but FireEye was still able to eke out its total revenue gain by increasing subscription and service results 12% to $150 million. The recurring revenue derived from focusing on lower cost software subscriptions and servicing existing customers will slow top-line growth in the near term, as it did last quarter, but it also builds a reliable foundation over the long run.

The other end of the spectrum

Unlike FireEye, which is in the early stages of its cost-cutting and software subscription initiatives, Check Point Software (NASDAQ:CHKP) has already been there, done that. One risk FireEye faces is whether or not it can continue its efficiency push and still grow revenue even slightly. Any slip-up and investors can bet much, if not all, of its 35% increase in share price this year will be gone in a heartbeat.

Check Point, on the other hand, has negated much of the aforementioned risk, as a glance at last quarter makes clear. Though Check Point’s total sales rose just 8% in the first quarter, its recurring subscription revenue soared 27% to $112 million.

Combined with Check Point’s software updates and maintenance revenue of $197 million, subscriptions accounted for 71% of its $435.45 million in total sales.

So, how risky is FireEye?

The end result of Check Point’s successful transition to all things software was a 15% jump in per-share earnings to $1.08, or nearly twice the growth of total revenue. Can FireEye deliver as Check Point does? Shareholders certainly hope so, or its stock price will come under enormous pressure. Virtually everything hinges on Mandia and team continuing the momentum it gained last quarter.

With any hiccup along the way, be it revenue nosedives due to cost-cutting or competitive forces, FireEye’s share price already assumes a successful transformation, ala Check Point. That in turn begs the question: Has FireEye gotten ahead of itself because of its positive momentum?

The slightest disappointment in the data security market, as happened last year, would also hit FireEye harder than most given its somewhat precarious, high-flying share price. All that being said, FireEye is an aggressive, but eventually sound investment alternative: just not yet. Existing shareholders shouldn't run for the hills, but for investors still on the fence, waiting for another quarter or two similar to the start of 2017 could change FireEye’s risk level: Time will tell.