The cybersecurity industry has gone one way this year, but shares of CyberArk (NASDAQ: CYBR) have gone the other. The Israel-based security company's business has continued to grow, but lowered expectations sent many investors packing. After declines in the stock price, some might be thinking shares are now at a value.
Cybersecurity in flux
With the world becoming increasingly reliant on technology, securing information and systems has become a critical task. High-profile hacks have raised awareness of the issues and contributed to the growth of cybersecurity.
The industry is still young and undergoing rapid change, and CyberArk has an active role in that. The company focuses on keeping privileged insider information for organizations secure and has done quite well for itself. Since going public in late 2014, revenues have more than doubled, and the bottom line has nearly doubled twice.
Even so, the company is still a small player in the overall industry with a market cap at $1.45 billion as of this writing. Growth is still the goal, and CyberArk has been talking a lot about new automation services as of late. A new open-source version of its Conjur software was launched last month to help fast-moving development teams keep their projects secure throughout the workflow.
Punishment where punishment is due
CyberArk's stock got beaten down earlier this summer when management let investors know that second-quarter performance would fall short of guidance. The company had originally expected quarterly revenue of $61 million to $62 million, but on July 13 let investors know second-quarter revenue would be more like $57 million to $57.5 million. The stock dropped 16% the next day.
The Aug. 8 quarterly report showed revenue of $57.5 million, a 14% year-over-year increase, paired with earnings that fell 50% to $0.09 per share, mainly due to higher spending on sales and marketing.
While 14% revenue growth is no shabby report card, investors had grown accustomed to much higher double-digit sales growth.
Management said the lower growth in the second quarter was mainly due to delays in new deals being closed. The implication was that revenue expansion in the back half of the year will go higher again, with 17% to 18% being the guidance for the whole year.
| Time Period | Year-Over-Year Revenue Increase |
|---|---|
| 2015 | 56% |
| 2016 | 35% |
| Q1 2017 | 26% |
| Q2 2017 | 14% |
| Expected Full-Year 2017 | 17% to 18% |
Data source: CyberArk.
Time to go shopping?
CyberArk may be slowing down dramatically on the top line, but that doesn't mean the stock isn't a buy. After share price declines, valuation metrics have gotten a little more reasonable.