Amid the marketwide selloff, investors will likely want to avoid stocks with high beta. This is evident by the fact that many momentum-driven stocks have been absolutely hammered in the last few weeks. While I consider avoiding high beta stocks a good move, FireEye (FEYE, Financial), after the recent selloff, looks like a good speculative investment.
Although FireEye is still reporting losses, the cyber security market is growing rapidly. Given the recent increase in security breaches, investors can expect the cyber security market to continue moving higher in the long term. With that in mind, investors should use the current market selloff to buy FireEye as the stock has lost over 60% of its value in the last few months.
FireEye’s key metrics
FireEye’s billing pattern is different than all other cyber-security companies. It is mandatory for a client to buy a one- to three-year maintenance and support contract when a client purchases any product from the company. The company bills the client in advance. Billing accounts for a more precise value to gauge the strength of the business. Throughout the past few years, the company has raised billings more than five times.
Though billings have increased at a swift stride, the speed of billing growth lost pace considerably in the third quarter. FireEye managed to grow billings by 28% as compared to the same quarter of the previous year and much lower than the 57% growth observed in the second quarter.
Another important thing for the company is its clients list. The company’s main strategy is to provide tremendous service to clients and to maintain a long-term relationship over time. FireEye’s land and develop model has shown fantastic growth result for the company. If the company continues to maintain its relationship with the clients, unrelenting hasty growth in the clients list will be a significant indicator of success.
Although billing growth slowed down in the latest reported quarter, FireEye is still growing at a rapid pace and can maintain double-digit growth for a long time. The company is growing its market share; due to the growth in the cyber security market, it will prove to be a long-term winner.
Threat from Palo Alto’s WildFire
Since cyber security market is on the rise, the sector is becoming increasingly competitive. And Palo Alto Networks (PANW, Financial) poses the biggest threat to FireEye. Palo Alto Networks holds a leading position in the cyber security market and is FireEye’s primary rival. Palo Alto’s WildFire is a specialized threat analysis and protection (STAP) solution, same as that of FireEye's threat analytics platform, a sandbox facility that runs potential malware in a precise environment. Although WildFire isn't Palo Alto's core invention, the demand for WildFire is escalating swiftly. As per the latest reported quarter, Palo Alto’s WildFire clients list comprised more than 8,000 clients, counting half the associates of the Fortune 100.
Palo Alto Networks carries on advancing WildFire to make sure it never loses steam. In 2014, the company signed a deal with Tanium, merging its WildFire service with Tanium's end-point solutions. The partnership performed very well producing positive feedback from clients. Palo Alto Networks has a lot of potential and can offer superior solutions along with its robust products.
Conclusion
Despite the threat posed by Palo Alto Networks, the cyber security market will be big enough to accommodate several companies. While FireEye may never become the market leader, the selloff has made the stock very attractive. FireEye is a great speculative investment.
