FireEye Stock: This Former $100 Stock a Bargain at $14.13

feye stockFireEye, Inc Misunderstood by Stock Market

The cybersecurity sector is attracting massive interest driven by the ongoing threats from both domestic and foreign actors. It seems like we are hearing about network breaches on a daily basis, and we expect this to continue.

And while many cyber stocks have exploded higher, there are still contrarian opportunities to add underperforming cyber plays, including FireEye Inc (NASDAQ/FEYE), a provider of security technologies, nation-state-grade threat intelligence, and consulting to over 9,000 clients in 103 countries.

Its long-term potential is huge, but FireEye stock has underperformed the Nasdaq and S&P 500, down 15% this year and 24% from its 52-week high. Also consider that FEYE stock had traded close to $100.00 in 2014, so the prospects for rapid price acceleration are there.

Looking at the chart, we see FireEye stock breaking down from a sideways channel to below $8.00 during the March sell-off.

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Chart courtesy of StockCharts.com

FEYE stock staged a strong recovery to above its 50-day moving average and 200-day moving average, but recently failed to hold the trendline support. The positive is that FireEye stock is back to just above its 50-day and 200-day moving averages supported by rising relative strength index and a moving average convergence-divergence buy.

The upside technical targets for FEYE are resistance at $18.00 followed by the $20.00 to $30.00 levels, last encountered in late 2015. Downside support is at $10.00-$11.00.

A Good Risk/Reward for FEYE Stock

A look at the five-year revenue picture shows four straight years of moderate growth. While consistent, FireEye Inc needs to deliver higher growth in order to attract a higher multiple and stock price.

Fiscal Year Revenue (Millions) Growth
2015 $622.9 N/A
2016 $714.1 14.60%
2017 $779.7 9.20%
2018 $830.9 6.60%
2019 $889.2 7.00%

(Source: “FireEye, Inc.,” MarketWatch, last accessed October 15, 2020.)

We are still not expecting revenue growth to improve in the immediate term. FireEye is expected to increase revenues by a mere 3.4% to $919.5 million this year followed by 5.7%  $971.5 million in 2021. (Source: “FireEye, Inc. (FEYE),” Yahoo! Finance, last accessed October 15, 2020.)

FireEye Inc also needs to tune up its negative earnings before interest, taxes, depreciation, and amortization (EBITDA) and generally accepted accounting principles (GAAP) profits.

The positive is that the EBITDA loss improved from 2016 to 2018 prior to a slight worsening in 2019.

Fiscal Year EBITDA (Millions) Growth
2015 -$299.4 N/A
2016 -$296.4 25.80%
2017 -$136.7 53.90%
2018 -$95.9 29.80%
2019 -$96.5 -0.60%

(Source: MarketWatch, op. cit.)

Moreover, FEYE managed to narrow its GAAP loss in four straight years.

Fiscal Year Diluted GAAP EPS Growth
2015 -$3.50 N/A
2016 -$2.94 16.00%
2017 -$1.60 45.40%
2018 -$1.27 20.60%
2019 -$1.24 2.50%

(Source: MarketWatch, op. cit.)

On an adjusted basis, FireEye is profitable and the consensus EPS trend is moving higher.

FireEye earned an adjusted $0.05 per diluted share in 2019, with estimates calling for the number to surge to $0.25 per diluted share this year and $0.29 or as high as $0.45 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

So far in 2020, FEYE has beaten the consensus EPS in two straight quarters.

Another glimmer of hope was the reporting of positive free cash flow (FCF) in 2019, up 165.6% versus 2018 and after four straight years of negative FCF.

Fiscal Year FCF (Millions) Growth
2015 -$17.5 N/A
2016 -$50.9 -190.30%
2017 -$26.1 48.70%
2018 -$33.5 -28.00%
2019 $21.9 165.60%

(Source: MarketWatch, op. cit.)

Analyst Take

FireEye has to deliver better numbers, especially on the revenue end. The stronger earnings push is bullish for FEYE stock.

We are also seeing some net insider buying of FireEye stock. Over the last six months, insiders bought 146,556 FEYE shares and sold 45,372 FEYE shares. (Source: Yahoo! Finance, op. cit.)

The fact that FireEye stock’s well below its high provides an intriguing risk/reward situation for the contrarian investor willing to be patient.