The cybersecurity industry has gone one way this year, but shares of CyberArk (NASDAQ:CYBR) have gone the other. The Israel-based security company's business has continued to grow, but lowered expectations sent many investors packing. After declines in the stock price, some might be thinking shares are now at a value.

CYBR Chart

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Cybersecurity in flux

With the world becoming increasingly reliant on technology, securing information and systems has become a critical task. High-profile hacks have raised awareness of the issues and contributed to the growth of cybersecurity.

The industry is still young and undergoing rapid change, and CyberArk has an active role in that. The company focuses on keeping privileged insider information for organizations secure and has done quite well for itself. Since going public in late 2014, revenues have more than doubled, and the bottom line has nearly doubled twice.

CYBR Revenue (TTM) Chart

Data by YCharts.

Even so, the company is still a small player in the overall industry with a market cap at $1.45 billion as of this writing. Growth is still the goal, and CyberArk has been talking a lot about new automation services as of late. A new open-source version of its Conjur software was launched last month to help fast-moving development teams keep their projects secure throughout the workflow.

Punishment where punishment is due

A worried-looking woman sitting in front of her laptop computer and looking at the screen.

Image source: Getty Images.

CyberArk's stock got beaten down earlier this summer when management let investors know that second-quarter performance would fall short of guidance. The company had originally expected quarterly revenue of $61 million to $62 million, but on July 13 let investors know second-quarter revenue would be more like $57 million to $57.5 million. The stock dropped 16% the next day.

The Aug. 8 quarterly report showed revenue of $57.5 million, a 14% year-over-year increase, paired with earnings that fell 50% to $0.09 per share, mainly due to higher spending on sales and marketing.

While 14% revenue growth is no shabby report card, investors had grown accustomed to much higher double-digit sales growth.

Management said the lower growth in the second quarter was mainly due to delays in new deals being closed. The implication was that revenue expansion in the back half of the year will go higher again, with 17% to 18% being the guidance for the whole year.

Time Period

Year-Over-Year Revenue Increase

2015

56%

2016

35%

Q1 2017

26%

Q2 2017

14%

Expected Full-Year 2017

17% to 18%

Data source: CyberArk.

Time to go shopping?

CyberArk may be slowing down dramatically on the top line, but that doesn't mean the stock isn't a buy. After share price declines, valuation metrics have gotten a little more reasonable.

The company doesn't churn out a lot of profit at this point, choosing instead to reinvest into potential growth. The stock's trailing-12-month price-to-earnings ratio is at 53.5, but forward P/E based on next year's expected earnings is 32. Analysts see the company growing profits an average of 15% in each of the next five years.

That is roughly in line with expectations for the overall cybersecurity industry, where some put growth in the range of 12% to 15% through the year 2021. If all of that transpires, CyberArk could be a good buy on the recent dip.

But analysts can be wrong, and often are when forecasting the long term. A lot can change in the years ahead. Because of that, I like to look at what a company is generating right now using free cash flow, or money left over after all basic operations are paid for.

CYBR Free Cash Flow (TTM) Chart

Data by YCharts.

CyberArk has done a good job of steadily increasing its free cash, and its 12-month price-to-free-cash-flow ratio is at 24.6, which is much more reasonable than the P/E of 53.5. I do worry that the top-line trajectory could keep trending down, and the displeasure of investors who are expecting more from the cybersecurity player could wreak more havoc on shares, and that keeps me from making a purchase.

However, assuming the company can keep up its stated annualized double-digit growth rate, the stock looks like it could be a good buy for those who can stomach potential ups and downs.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool recommends CyberArk Software. The Motley Fool has a disclosure policy.