Imperva Looks Intriguing with Strong Upside at Current Price
We all know about the constant threats to critical data in this country, so it wasn’t that much of a surprise when news surfaced about the massive data breach at Equifax Inc. (NYSE:EFX), which saw half of the personal credit information in the United States hacked.
The ongoing failure of companies to safeguard their critical data continues to be a real concern, which will bode well for cybersecurity stocks such as small-cap Imperva Inc (NASDAQ:IMPV).
Imperva is a rapidly growing developer of cloud and physical cybersecurity solutions used to defend critical data and applications on a company’s network.
The cybersecurity sector was sizzling along in November 2015 when IMPV stock was trading at $78.00, up 325% from $18.40 in May 2014.
Imperva is trading at just below the midpoint of its 52-week range, underperforming the S&P 500 with a 16.8% decline over the past 52 weeks. The positive is that IMPV stock is displaying some strength, with a run-up of 16% this year.
And there is more to come.
The beta of 2.00 implies that Imperva stock’s risk to the market is higher. In a rising market, IMPV stock will likely outperform, while it will likely lag behind in a down market.
My Bull Thesis for IMPV Stock
Imperva has managed to drive revenues higher in three consecutive years, starting from $137.76 million in 2013 to $264.55 million in 2016, representing a strong compound annual growth rate (CAGR) of 24.50%.
The growth rate is predicted to come in at around 21.50% to $321.38 million this year, followed by growth of 18.20% to $379.86 million in 2018. (Source: “Imperva, Inc. (NASDAQ:IMPV),” Yahoo! Finance, last accessed October 10, 2017.)
Imperva has also managed to control the cost side by driving up gross profits and maintaining gross margins at 77% to 79% over the past three years.
|Imperva Gross Margins|
The expansion in revenues and gross profits while maintaining a high gross margin means Imperva is on the verge of making money after three straight years of losses.
After a loss of $0.07 per diluted share in 2016, Imperva is expected to earn an impressive $0.81 per diluted share this year and $0.94 per diluted share in 2018. The company could make as much as $1.08 per diluted share in 2018.
The earnings picture is quite bullish. The rise in the earnings per share (EPS) estimates over the past 60 and 90 days indicates a company that is accelerating its earnings growth.
Furthermore, Imperva has beaten the consensus EPS in four straight quarters. What was impressive was the average beats of 150%, 967%, 325%, and 380% to the next quarter.
The chart of Imperva stock dating back to 2012 displays several breakouts and subsequent failures to hold. This includes two rallies from $30.00 in November 2012 to $60.00 in February 2014, followed by a move from $20.00 in May 2014 to $77.00 in November 2015.
Chart courtesy of StockCharts.com
The inability to hold has been a disappointment, but there are some positive signs emerging on the daily chart.
Over the last three months, IMPV stock appears to be breaking higher from the base at $42.00 to $43.00 that began in August.
Chart courtesy of StockCharts.com
An uptick in the relative strength indicator (RSI) and a bullish moving average convergence/divergence (MACD) crossover could drive Imperva stock toward the recent $52.00 double top in June and July. A breakout here could see IMPV stock take a run at $55.00 and the 52-week high, representing a 30% move.
Of course, if Imperva can deliver the strong growth metrics, I wouldn’t be surprised to see an eventual move above $60.00 and toward its previous high.