Despite reporting another surprisingly solid quarter, FireEye (NASDAQ:FEYE) shareholders took it on the chin thanks to lower-than-expected guidance. Before long-term growth investors head for the hills, note that FireEye's expectations for the current quarter and fiscal year are fine, and it's delivering where it counts.

Knee-jerk reactions based on pundits' estimates are not indicative of a stock's true potential, particularly in FireEye's case, given that the strides CEO Kevin Mandia has made in just over a year are nothing short of remarkable. And, assuming it continues its successful strategic transition, FireEye will end up being a growth investor's dream over the next five years.

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Image source: Getty Images.

You're kidding, right?

Last quarter was somewhat surprising in that FireEye generated $189.6 million in revenue, good for a 2% increase over 2016. Many analysts were expecting no top-line growth, or even worse. The guidance that seemed to disappoint is a head-scratcher for FireEye bulls like myself.

There are a couple of reasons fourth-quarter guidance of between $190 million to $196 million, and annual expectations of $739 million to $745 million, aren't concerning. One, at this stage in its transition, FireEye's total revenue takes a back seat to its emphasis on cloud-based software and cutting overhead.

Secondly, at the midpoint of guidance, FireEye estimates a 4.5% increase in fourth-quarter revenue compared to 2016. For the year, FireEye expects a 4% increase over 2016's $714.1 million -- again, at the midpoint of guidance. But don't be surprised when FireEye beats expectations, let alone meets them.

What really matters

When Mandia took over as CEO in mid-2016, he had two objectives for FireEye. The plan was to drastically cut costs and focus on a cloud-based software model to build a foundation of recurring revenue. Sweeping changes take time, and FireEye is no exception.

What matters is how well FireEye is meeting its objectives, and in both regards Mandia has earned an A+. Operating expenses dropped 20% last quarter to $183 million, and cost of revenue eased 1% to $68.2 million. Clearly there's a way to go, but FireEye is making huge strides with each passing quarter.

For some perspective, in the first nine months of 2017 FireEye shaved 24% off its operating expenses to $542 million, and it's spending 4% less on cost of revenue. As its efforts to become more efficient continue, FireEye will be soaring in five years. In fact, investors need look no further than FireEye peer Check Point Software (NASDAQ:CHKP) for a glimpse at the future.

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Image source: FireEye.

Follow my lead

Check Point CEO Gil Shwed implemented a plan several years ago, much like FireEye is in the early stages of executing today. Last quarter was an example of what FireEye shareholders can expect in the years to come. Check Point reported a 6% increase in total revenue, just so-so by many investors' standards.

However, thanks to Check Point's growing foundation of low-overhead, recurring revenue, its earnings per share (EPS) skyrocketed 17% to $1.16 a share. Check Point's $120.33 million in software subscriptions in the third quarter was a 22% improvement compared to a year ago. When combined with software updates and maintenance of $205.6 million, 72% of Check Point's revenue is recurring. That's where FireEye is headed, and it should be up and running in five years.

Much like Check Point, FireEye's new emphasis on cloud software sales has resulted in steady declines in product revenue. Year to date, FireEye's product revenue of $85.4 million is down 28%, which isn't surprising given its new direction. However, the $463.4 million in recurring software revenue is a 13% increase and more than makes up for the expected drop in product sales.

With the growth of its subscriptions, combined with slashing overhead, FireEye's operating margins improved last quarter, as did EPS, to negative $0.41 a share compared to the $0.75 per-share loss a year ago. Excluding one-time items, FireEye lost $0.04 a share, a fraction of last year's negative $0.18 a share.

Where will FireEye be in five years? At the pace FireEye is going, one look at Check Point says it all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.