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Why FireEye Stock Dropped 19% in December

By Joe Tenebruso – Updated Apr 16, 2019 at 5:13PM

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A Wall Street firm sees limited upside for the cybersecurity company's shares.

What happened

Shares of FireEye (MNDT) plunged 19% last month, according to data from S&P Global Market Intelligence, following an analyst downgrade.

So what

FireEye entered December with momentum. Investors applauded the cybersecurity company's third-quarter earnings report on Oct. 30. FireEye delivered solid sales growth and improved profitability, and it boosted its full-year revenue outlook. In turn, investors bid up FireEye's stock by more than 20% by the end of November. 

Yet on Dec. 13, Morgan Stanley analyst Melissa Franchi downgraded her rating on FireEye from "overweight" to "equal weight." Franchi acknowledged that FireEye had improved its operational execution and product portfolio, but she warned that revenue growth could begin to slow in 2020. Franchi also said that the recent outperformance of FireEye's stock compared with its peer group could limit its upside, as shares were trading within 10% of her $21 price target at the time. 

FireEye's stock gave back all of its post-earnings gains by the end of December.

A finger points to a spot on a zigzagging stock chart.

Image source: Getty Images.

Now what 

With FireEye's stock currently changing hands for less than $17 per share, there's now about 20% upside to Franchi's price target. Moreover, that estimate could prove conservative if FireEye can continue to ramp up sales of its cloud-based subscriptions -- particularly to smaller businesses -- while maintaining a lid on expenses.

That won't be easy, as competition is set to intensify in the coming years, with powerful new players such as Alphabet recently entering the cybersecurity arena. As such, FireEye remains a relatively high-risk stock -- and there are better ways to profit from the industry's growth.

Check out the latest FireEye earnings call transcript.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends FireEye. The Motley Fool has a disclosure policy.

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