Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of cyber security company CyberArk Software (NASDAQ:CYBR) jumped on Monday after Bank of America initiated analyst coverage, giving the stock a buy rating and a $60 price target. At noon, the stock was up just over 10%. It had closed Friday at $48.69.
So what: The crux of Bank of America analyst Tal Liani's argument comes down to CyberArk's solutions for protecting privileged accounts, or those that have access to systems with sensitive information. The analyst believes that CyberArk offers unique solutions, differentiating it from its peers.
CyberArk's revenue growth has been accelerating, with 56% growth in 2014 improving on 40% growth in 2013 and 30% growth in 2012. The analyst expects this revenue growth to slow down to 31% in 2015 and 28% in 2016, with operating margins in the low-to-mid teens.
The analyst's price target would give CyberArk an enterprise value of about 9.5 times expected sales in 2016, similar to the valuations of other cyber security companies. Separately, the IPO lock-up period on the stock ended today, potentially contributing to the stock's rise.
Now what: CyberArk operates in a hot sector, and many cyber security companies are trading at lofty valuations. Unlike many of its peers, CyberArk is profitable, posting an impressive operating margin of about 20% during 2014. However, the stock already trades at around 160 times 2014 earnings and 15.5 times 2014 sales, so the company will need to grow extremely rapidly in the coming years to justify this valuation.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.