FireEye Stock: Why This Cybersecurity Company Could Stage a Major Rally

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FireEye Is the Batman of the Cybersecurity Space

Crime fighters don’t always fly or climb up walls to catch the bad guys. The modern version of the crime fighter confronts the enemy in cyberspace, the virtual world of codes. That’s the case with FireEye Inc (NASDAQ:FEYE).

FireEye stock made news after informing social media companies like Alphabet Inc (NASDAQ:GOOG), Facebook, Inc. (NASDAQ:FB), and Twitter Inc (NYSE:TWTR) about disinformation campaigns.

FEYE stock jumped 12% on the news but is up only 11.9% over the past year and well off its record $97.34 in March 2014.

Given the massive spike in fake news online, the major social media giants are guarding against possible interference and the spread of false information. FireEye is helping these companies uncover misdeeds via policing their online media.

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Based on the extent of the flow of fake news and smear campaigns, FireEye should benefit via its offering of advanced firewalls, anti-virus, and protective gateways.

FireEye has more than 2,700 companies in over 67 countries as clients. This includes more than 160 Fortune 500 companies.

While there is no guarantee that FEYE stock will ever trade at record levels again, its recent decline is providing risk capital traders an opportunity to take a closer look.

Chart courtesy of StockCharts.com

The Bull Thesis Behind FEYE Stock

At the same time that FireEye stock has drifted lower, the company has managed to drive revenue higher in four consecutive years, albeit at a declining growth rate.

Revenue increased from $161.6 million in 2013 to $751.1 million in 2017, representing an impressive compound annual growth rate (CAGR) of 46.8%.

Fiscal Year Revenue (Millions) Growth
2013 $161.6
2014 $425.7 163.5%
2015 $623.0 46.4%
2016 $714.1 14.6%
2017 $751.1 5.2%

While the CAGR was skewed by the strong growth in 2014, the positive revenue trend is expected to continue at 10.1% growth to $826.9 million in 2018 and 7.2% growth to $886.6 million (or even as high as $915.0 million) in 2019. (Source: “FireEye, Inc. (FEYE),” Yahoo! Finance, last accessed August 24, 2018.)

Regular earnings and earnings before interest, taxes, depreciation, and amortization (EBITDA) are negative for FireEye, but there was growth in 2016 and 2017 at a higher rate than the revenue growth rate.

Fiscal Year EBITDA (Millions) Growth
2013 -$143.0
2014 -$380.7 -166.3%
2015 -$394.6 -3.6%
2016 -$292.7 25.8%
2017 -$157.6 46.2%

FireEye has beaten the consensus quarterly earnings-per-share (EPS) estimates in three of the past four quarters, including breaking even in the second quarter.

Fiscal Year GAAP Diluted EPS Growth
2013 -$2.7
2014 -$3.1 -17.3%
2015 -$3.5 -12.2%
2016 -$2.9 16.0%
2017 -$1.7 41.8%

FireEye is estimated to report adjusted profits of $0.03 per diluted share in 2018, versus an adjusted loss of $0.16 per diluted share in 2017. For 2019, FEYE is expected to ramp up adjusted earnings to $0.16 and as high as $0.31 per diluted share.

The key free cash flow (FCF) is negative for FireEye, but the numbers have narrowed and a positive FCF could materialize as early as 2018.

Fiscal Year Free Cash Flow (Millions)
2013 -$127.3
2014 -$199.0
2015 -$17.5
2016 -$50.9
2017 -$26.1

Analyst Take

FireEye has strong institutional ownership, with 402 institutions owning 72% of its outstanding shares.

FEYE stock is also attracting strong insider buying. Over the past six months, insiders bought a whopping 4.5 million shares over 17 transactions, versus 1.3 million sold.

My view is that, when it comes to FireEye stock, you might want to follow the example of the institutions and insiders.