FireEye, Inc. (FEYE) is a Milpitas, Calif.-based cybersecurity solutions provider. The company generated robust revenue growth last year in its Mandiant Solutions business as organizations turned to cybersecurity solutions amid rising cyber threats. But the stock’s price has dipped 16.3% over the past month and 22.5% year-to-date owing to FEYE’s  unimpressive second-quarter 2021 earnings report. Also, the stock is currently trading 30% below its 52-week high of $25.53, indicating short-term bearishness.

FEYE’s recent announcement of its sale of its FireEye Products business to a private equity company has further added to investors’ anxiety surrounding the stock.

Because the company plans now to focus solely on its cloud-first security product portfolio, we think the investor uncertainty surrounding the business-model transition and its growth potential could put further downward pressure on its stock in the near term.

Click here to checkout our Cybersecurity Industry Report for 2021

Here is what we think could influence FEYE’s performance in the near term:

Uncertainty Surrounding Divestiture

In June, FEYE agreed to sell its FireEye Products business, including the name FireEye, to private equity firm Symphony Technology Group, for $1.2 billion in cash. The company expects the transaction to close by the end of the fourth quarter. Although the divestiture should  enable the company to boost the growth of its Mandiant Solutions business and prioritize its cloud-first security portfolio, it could have a detrimental effect on shareholder value. Furthermore,  investors’ concerns related to FEYE’s transition to a cloud-based standalone business and its uncertain growth potential could negatively impact the stock in the coming months.

Click here to check out our Cloud Computing Industry Report for 2021

Dismal Financial Performance

For the second quarter, ended June 30, 2021, FEYE reported $114 million in revenue from continuing operations, representing an increase of 17% year-over-year. But the company’s non-GAAP operating margin came in at negative 26%, while its operating loss stood at $84.51 million. In addition, FEYE incurred a $69.26 million net loss for this quarter, compared to a $53.28 million net loss in the prior-year period. Moreover, FEYE’s cash and cash equivalents totaled $387.31 million for the six months ended June 30, 2021, down 4.2% year-over-year.

Poor Profitability

FEYE’s 3.5% trailing-12-month levered free cash flow margin is 72.2% lower than the 12.6% industry average. The company’s trailing-12-month ROA, net income margin and ROE are negative 6.1%, 19.7%, and 33.7%, respectively. In addition, its 0.3% trailing-12-month asset turnover ratio is 48.6% lower than the 0.7% industry average.

POWR Ratings Reflect Bleak Outlook

FEYE has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. FEYE has a C grade for Growth. The stock’s inadequate growth prospects are reflected in this grade.

It also has a C grade for Stability, which is in sync with its relatively high 1.09 beta. 

In terms of Sentiment Grade, the company has an F. This is consistent with bearish analyst sentiment toward the stock.

Beyond the grades we’ve highlighted, one can check out additional FEYE ratings for Quality, Value, and Momentum here.

Of the 26 stocks in the D-rated Software – Security industry, FEYE is ranked #19.

View the top-rated stocks in the Software – Security industry here.

Bottom Line

Although the sale of FEYE’s FireEye Products business to focus more on the Mandiant Solutions business could help the company better serve its customers, unless the standalone business  proves its ability to drive growth, the stock could remain volatile. Furthermore, investors’ concerns surrounding the business-model switch and FEYE’s  weak financials could cause its shares to retreat further. So, we believe it is wise to avoid the stock now.

Click here to checkout our Cybersecurity Industry Report for 2021

FEYE shares fell $0.06 (-0.34%) in premarket trading Wednesday. Year-to-date, FEYE has declined -22.77%, versus a 19.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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