Varonis Systems Stock: A Buying Opportunity on the Horizon

Varonis Systems Stock
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Play Cybersecurity With Varonis Systems

The alleged attack on the U.S. electoral system by Russia is front and center in the news these days. The renewed focus on cybersecurity threats has resulted in positive sentiment for the companies involved in the area, including small-cap Varonis Systems Inc (NASDAQ:VRNS).

The stock, just off its 52-week high, is showing some technical signs of a pending price correction, which could result in a more attractive entry point for potential investors.

Varonis Systems provides companies with a software platform for protecting critical data from insider attacks and outside threats. The company deals with a broad landscape of clients across numerous sectors. The geographical reach of VRNS is global, comprising of over 5,400 clients.

Fundamentals Suggest Good Times for VRNS Stock

What makes me bullish on Varonis Systems stock is the company’s rising revenue and earnings trend. Revenues have surged by more than 60% from $101.3 million in 2014 to $164.5 million in 2016.

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During the past three years, Varonis Systems has also been able to control the cost side via maintaining the gross margin at just above 90%, which is impressive, and which is expected to drive the first profits in 2017.

We are also seeing rising revenue estimates, which is a bullish indicator of the ability of Varonis Systems to steadily increase its revenue base.

The current revenue growth metrics of 25.4% (for 2017) and 18.5% (for 2018) to $206.3 million and $244.5 million, respectively, have increased from the 20.8% and 17.4% estimates in April. (Source: “Varonis Systems, Inc. (VRNS),” Yahoo! Finance, last accessed November 2, 2017)

The ability to drive gross margins at the 90% rate is expected to see Varonis Systems turn its first-ever profit of $0.09 per diluted share this year, followed by a surge to $0.23 per diluted share in 2018. The fact that earnings estimates have also been on the rise is bullish for investors.

And, if you want even more reasons to believe that a bright future lies ahead for VRNS stock, consider that the company has beaten the consensus earnings per share (EPS) estimates in eight consecutive quarters, from the second quarter in 2015 to the most recent second quarter in 2017, during which Varonis Systems beat by 113%.

Analyst Take:

Technically, VRNS stock emerged from a bullish rounding bottom formation that began in early 2015 to the breakout at $30.00 in May 2017.

VRNS stock chart

Chart courtesy of StockCharts.com

But the daily chart is potentially forecasting a pending correction for Varonis Systems stock, as witnessed by the break to the 50-day moving average.

Varonis Systems stock

Chart courtesy of StockCharts.com

The moving average convergence/divergence (MACD) is showing a near-term sell on weakening relative strength.

Should Varonis Systems stock break below $40.00 and move toward the six-month low at around $35.00, this would represent an intriguing entry point for patient investors.

The upper technical target for VRNS stock is $50.00, which was last encountered in 2014.