Cybersecurity company IronNet, Inc. (IRNT) made its stock market debut on August 27, 2021, via special purpose acquisition company (SPAC) LGL Systems Acquisition Corp. The company made its flagship Collective Defense solution available to all Singapore enterprises in August 2021. The stock soared to hit its 52-week high of $47.50 on September 16, 2021, primarily due to social media hype.

However, similar to many other meme stocks, it plunged significantly since hitting its high and is highly volatile. The stock has lost 54.3% since hitting its 52-week high and 22% over the past month to close yesterday’s trading session at $12.99. IRNT is still in its early stages of development and faces intense competition from other top players in the cybersecurity industry. In addition, its top-line declined in the fiscal second quarter, and its losses widened. So, its near-term prospects look bleak.

Here’s what could shape IRNT’s performance in the near term:

Increased SPAC-Related Scrutiny

Several companies going public via the SPAC method have enjoyed immense popularity over the past year. However, the number of IPOs involving SPACs plunged 87% from April through June compared with the first quarter of 2021 due to tightened regulations. Moreover, on September 22, U.S. Senator Elizabeth Warren and three other Senate Democrats sent letters to some of the most prolific SPAC dealmakers, addressing concerns that SPAC insiders exploit regulatory loopholes at the expense of retail investors. So, IRNT could be impacted due to increased regulations regarding SPACs.

Weak Financials

IRNT’s revenue declined 22.8% year-over-year to $6.10 million for the fiscal second quarter that ended July 31, 2021. The company’s dollar-based average contract length was 2.8 years compared to 3.2 years in the prior-year quarter. Its non-GAAP calculated billings decreased 52.7% year-over-year to $3.50 million. Its operating loss increased 19.7% year-over-year to $17 million. Also, its net loss came in at $17.20 million, up 20.3% year-over-year.

Poor Profitability

In terms of trailing-12-month EBITDA margin, IRNT’s negative 200.76% is significantly lower than the industry average of 14.68%. The stock’s trailing-12-month ROTC and ROTA are negative compared to the industry averages of 4.75% and 3.56%, respectively. Moreover, its trailing-12-month levered FCF margin is negative compared to the industry average of 12.58%.

POWR Ratings Reflect Bleak Prospects

IRNT has an overall grade of F, which equates to a Strong Sell rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary ratings system also evaluates each stock based on eight different categories. IRNT has an F grade for Growth and Sentiment, in sync with analysts’ expectations that its EPS will remain negative this year and next year.

The stock has an F grade for Value, consistent with its forward EV/S and P/S of 30.56x and 27.01x, higher than the industry averages of 4x and 3.97x, respectively. Moreover, IRNT has a D grade for Stability.

IRNT is ranked #27 out of 28 stocks in the Software – Security industry. Beyond what I have stated above, we have given IRNT grades for Momentum and Quality. Get all of IRNT’s ratings here.

Bottom Line

IRNT is an emerging player in the fast-growing cybersecurity space and is known for IronDefense and IronDome. However, the stock has declined significantly since hitting its 52-week high. In addition, analysts expect its EPS to remain negative this year and next year. So, the stock looks overvalued at its current price level and is best avoided now.

How Does IronNet (IRNT) Stack Up Against its Peers?

IRNT has an overall grade of F. However, you could check these stocks in the same industry with an A (Strong Buy) or B (Buy) rating: Radware Ltd. (RDWR), McAfee Corp. (MCFE), and NortonLifeLock Inc. (NLOK).

IRNT shares were trading at $13.03 per share on Thursday morning, up $0.04 (+0.31%). Year-to-date, IRNT has gained 28.75%, versus a 18.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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