After struggling for almost two years, shares of FireEye Inc. (FEYE, Financial) got a much-needed breather last month after back-to-back upgrades by Bank of America and Goldman Sachs. There is no denying FireEye has great products and ideally should benefit from the growing cybersecurity market. Over the years, however, the company’s execution has been terrible, which has resulted in the stock plummeting considerably from all-time highs.
The company hired a new CEO recently, extinguishing its chances of an acquisition, but apart from cutting costs, the company’s execution at the top level has not improved. So unless there is a change in management, buying FireEye (especially after the recent rally) does not make sense. The track record of its incompetent management is terrible, and since the company is being led by the same people, I do not think there is any reason to expect the stock to perform any better going forward.
The recent rally can be used as an exit point by investors who have ridden the stock down in the hopes of an acquisition. The company is still lagging its competitors on many fronts, so there is no reason to expect this trend to change. While FireEye has great products, they rarely transmute into higher sales without excellent management.
Kevin Mandia, FireEye’s current CEO, has been in the leadership role for almost a year now. In that time, the company has not shown any signs of changing. FireEye is competing in a very crowded sector, which makes the risk of incompetent management even bigger. Every misstep on the company’s part will be taken advantage of by its peers.
The entire cybersecurity space is currently crying out for innovations, and FireEye may have a great product on its hand in the form of Helix. The company is taking steps in the right direction as it is restructuring its sales leadership to direct its terrible sales team. Unless these initiatives result in better quarterly numbers, however, I would advise investors stay away from the stock.
Conclusion
FireEye has been performing terribly and this trend will not change just because of a few rating upgrades. Although FireEye has taken steps in the right direction, there is still no sign of higher profit and sales results. Given the management team's track record, investors would be better off watching the stock from the sidelines and tracking the progress of its recent initiatives before investing in the stock.
Disclosure: I do not hold a position in the stock mentioned in this article.
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