FireEye (NASDAQ:FEYE) was once a high-growth darling in the cybersecurity sector, but the threat prevention firm's growth decelerated as the competition intensified and the stock now trades below its IPO price of $20 per share.

FireEye's stock has been stuck in neutral over the past 12 months, and investors might be wondering if it will ever rally. Let's take a closer look at FireEye's business to find out.

A woman checks security software on a tablet.

Image source: Getty Images.

What does FireEye do?

FireEye offers threat prevention solutions that intercept attacks before they breach a network. Over the past two years, FireEye pivoted away from selling on-site appliances toward cloud-based services.

This caused its revenue growth to slow down, since installing appliances generated higher initial revenues. However, FireEye hoped that shifting its focus toward cloud services would provide it with more consistent growth through subscriptions. It also believed that bundling multiple threat prevention products into a single unified platform, called Helix, would lock in its customers and widen its moat.

Under Kevin Mandia, who became CEO in 2016, FireEye focused on cutting back its operating expenses, which produced its first quarter of break-even non-GAAP earnings per share last quarter. However, FireEye remains unprofitable on a GAAP basis, mostly due to stock-based compensation (SBC) expenses, which gobbled up 23% of its revenues last quarter.

Who are FireEye's main competitors?

FireEye faces a long list of competitors, but its most prominent rivals are Palo Alto Networks (NYSE:PANW), Fortinet (NASDAQ:FTNT), and Cisco (NASDAQ:CSCO).

Palo Alto and Fortinet both offer next-gen firewalls, which allow them to cross-sell additional security products. Cisco bundles a growing list of security products with its networking hardware and software, and its portfolio includes similar threat prevention products from Sourcefire and ThreatGrid.

A businessman controls security software on a tablet.

Image source: Getty Images.

FireEye's total revenues rose just 5% to $751 million last year, but analysts anticipate 10% growth this year as its expands its Helix, email, and endpoint protection services.

However, Wall Street expects Palo Alto's sales to grow 28% to $2.25 billion this year, and for Fortinet's sales to rise 19% to $1.78 billion. Cisco's security revenues rose 9% to $2.35 billion last year.

Therefore, FireEye generates less revenue than its rivals, and is growing at a slower rate. That makes FireEye seem like a less appealing investment -- but its stock also trades at a much lower price-to-sales ratio than the stocks of those larger companies.

FEYE PS Ratio (TTM) Chart

Source: YCharts

Should FireEye be throttling its spending?

FireEye is struggling to grow in the shadow of its larger rivals, but the company insists on throttling its spending to generate a non-GAAP profit next year. Here's how much FireEye's operating expenses rose last quarter.

 

Percentage of operating expenses

Absolute YOY change

Research and development

34.6%

4.7%

Sales and marketing

51.2%

1.9%

General and administrative

14.2%

(5.8%)

Total

100%

1.6%

Source: FireEye Q2 earnings report.

For comparison, Palo Alto and Fortinet's operating expenses rose 17% and 16% year-over-year, respectively, in their latest quarters. FireEye also finished the quarter with over $1 billion in cash thanks to a $600 million convertible note offering, so its spending could too conservative.

This matters because investors often favor two types of tech stocks in an aging bull market: younger players with strong sales growth, and mature players that dominate their markets with slow but steady growth.

FireEye, however, is a slow growth underdog. At this point, it should focus on launching more products, boosting its sales and marketing efforts, and acquiring smaller rivals instead of clawing its way toward non-GAAP profitability. If FireEye were serious about boosting investor confidence in its finances, it should reduce its SBC expenses to improve its GAAP numbers instead.

The verdict: Stick with other cybersecurity stocks instead

FireEye won't crash and burn anytime soon, but Palo Alto, Fortinet, and Cisco seem like better overall investments. FireEye is playing it safe when it should get aggressive, and it could be lost in the shuffle as larger companies expand their security platforms.

Leo Sun owns shares of Cisco Systems. The Motley Fool recommends FireEye, Fortinet, and Palo Alto Networks. The Motley Fool has a disclosure policy.