It seems like the market is struggling to learn from its mistakes regarding FireEye (NASDAQ:FEYE). Despite many past acquisition reports failing to materialize, investors always bid up the stock whenever there’s a new report, only for it to be shot down a few days later.
Last month, it was reported that FireEye was subject to an acquisition offer in the range of $16 per share from LifeLock. Reuters, however, later reported that the buyout talks between the two companies ended six months ago. With every passing day, the chances of a FireEye acquisition are getting slimmer. Investors should realize by now a FireEye acquisition is highly unlikely as the company’s management has always valued itself ridiculously.
Last year FireEye’s apparent acquisition failed to materialize because the management wanted close to $30 per share. Given that the stock is currently trading at $10, the $15 per share offer that FireEye reportedly rejected seems to be a bad move on the management’s part.
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- FEYE 15-Year Financial Data
- The intrinsic value of FEYE
- Peter Lynch Chart of FEYE
With FireEye losing money, albeit at a slower pace now, I expect the stock to continue moving lower. Moreover, FireEye’s competitors have outperformed it by a huge margin, which has further dampened the chances of the company ever getting acquired.
I don’t think any company will be willing to pay a premium for FireEye given its recent rack record. The cyber security market is still growing, but FireEye has clearly failed to harness this growth. The cyber security landscape has changed drastically over the last year and FireEye, under the leadership of new CEO Kevin Mandia, has failed to adapt to this change, and this casts a big shadow of doubt on the management’s ability.
Although Mandia has management to reduce FireEye’s losses, he has only been able to achieve that via cost-cutting. Reducing expenses may be a good strategy, but it can only take you so far. The company needs to report stronger growth in order to reward shareholders, and that doesn’t seem like happening anytime soon.
FireEye has been in a downtrend for quite some time and given the aforementioned headwinds, I expect its troubles to continue. Cost-cutting may have helped to reduce FireEye’s losses, but the company’s lack of growth is bothersome. For these reasons, I expect the stock to continue heading lower in the future and would recommend investors to avoid it.
Disclosure: No position.