Mimecast Limited (MIME) is one of the 9 stocks featured in a new special report. Claim your copy now! 9 “MUST OWN” Growth Stocks for 2021.

Email is the primary form of communication for most businesses. Of course, reliance on email has only increased due to the pandemic over the last year. Even when the world returns to normal, some portion of work will remain remote due to lower costs for employers and more flexibility for employees. Additionally, some companies may choose a more hybrid approach in which workers may come into offices a couple of days a week.

While there are many advantages to the increased adoption of remote work, it does increase security vulnerabilities for businesses. Currently, 96% of security breaches are through email. Despite this, only 8% of IT security spending is on email, which provides a substantial growth opportunity for email security software company Mimecast (MIME).

Mimecast Profile

MIME is the leading company protecting against email threats. Its core product is cloud-based software that addresses internet security threats that mainly cause email failure or downtime. Its products also provide cloud security and risk management for all corporate information including email. 

Note that MIME is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

These threats are always getting more sophisticated with costs of disruption also rising, so it’s not surprising that cybersecurity spending is projected to increase at a 10% CAGR for the next decade. And, email is one of the biggest points of vulnerability. MIME has room to grow given that its total addressable market is estimated to be 1 billion. Currently, it has 15 million users.

MIME’s revenue comes through subscription fees and sales to customers purchasing additional support. It currently has a customer base of over 38,000 organizations, which should continue to grow.

Earnings Momentum

MIME’s recent earnings report and guidance showed that the company remains on a growth trajectory. However, the stock price has not significantly rallied in recent months as many cybersecurity stocks which benefited from the coronavirus have underperformed in lieu of “reopening” stocks. 

Mimecast continued an impressive streak by topping analysts’ expectations for a seventh straight time. In Q4, it beat earnings expectations by 37% which was 137% higher than last year. Revenue also topped the consensus by 17%. The company is forecasting $563 million in revenue for the upcoming fiscal year. 

Given management’s track record of beating expectations by more than 10%, it wouldn’t be surprising to see revenue above $600 million in 2021. Wall Street analysts have been increasing earnings estimates as well. In the past six months, 2021 estimates were increased by 30%, while 2022 was revised by 15% higher.   

Mimecast Growth Strategy

MIME also has some ambitious growth plans. Beyond email security, it provides adjacent products and services such as risk assessment tools, information archiving, secure messaging, file transfer, and web security. The average customer uses an average of 3.5 products.

In addition to this horizontal growth, it’s looking to enter new markets like government security as it’s recently obtained the FedRAMP certification. It’s also expanding internationally in Central Europe, Canada, and government markets. 

From email security, MIME’s platform has changed to meet new needs and respond to the evolving cybersecurity threats. The company has added five new products over the last seven years for a total of 12. These include perimeter defenses, threat detection, email security, VPNs, and targeted threat protection.

The company’s main focus is upselling existing customers and adding new ones. It’s going after large enterprises with partners to leverage their security offerings. 

MIME has been focused on winning new customers and selling them additional service through upsells. The company is also targeting large enterprises through partnerships to generate further growth. MIME recently joined CrowdStrike’s (CRWD) Elevate Partner Program so that joint customers can leverage their security offerings.

Growth at a Reasonable Price

MIME has above-average growth rates and a strong position in a large and expanding market that seems relatively untapped. However, the stock is also trading at a very attractive valuation especially for the cybersecurity sector. 

According to Raymond James, the price-to-sales ratio (P/S) for the cybersecurity sector is 16, while MIME’s is 6. MIME has growth rates and margins in-line with the rest of the sector. This means the stock is undervalued which gives it some cushion in bear markets and could lead to outperformance with a growth to value rotation in markets.

POWR Ratings

Given this attractive growth and value picture, it’s not surprising that MIME has an overall rating of A in the POWR Ratings service, which equates to a strong buy. This grade is calculated by weighting 118 different factors. 

Over the last 20 years, A-rated stocks have generated a compound annual return of 30.7%. So, it makes sense that only an elite group of stocks quality for this grade. The POWR Ratings also assess stocks according to different components and industry conditions. 

MIME has a Value grade of B which is consistent with its attractive valuation relative to peers. In recent months, the stock experienced selling pressure along with many stocks in sectors that benefited from the coronavirus. Therefore, it’s trading at a discount and could be a good entry, given that its recent earnings report proved that it won’t be affected by the world returning to normal. 

In terms of Quality, it receives an A grade. We have tangible evidence of this with its 104% customer retention rate. MIME has a churn rate of about 15% but this is mitigated by users increasing their spending. It should also add more users given that its core demographic is small businesses. 

Click here to access MIME’s POWR ratings for Growth, Momentum, Stability and Sentiment.

MIME is ranked #9 of 111 stocks in the Software – Application industry.  There are several other top-rated stocks in the same industry. Click here to access them.

Conclusion

MIME is at the intersection of several large and growing industries – remote working, cloud computing, cybersecurity, and enterprise software. As trends shift toward cloud architecture for email security, the company is uniquely positioned to capture additional market share.

The company has an above-average growth rate, favorable valuation, consistent track record of beating earnings, expanding margins, and high levels of customer retention. These factors make MIME a tantalizing growth opportunity. 

Note that MIME is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Want to Find More Great Growth Stocks?  

Then get your hands on the just released special report featuring the best growth stocks for 2021. Just click the link below to claim your copy!

9 “MUST OWN” Growth Stocks for 2021.

MIME shares were unchanged in after-hours trading Wednesday. Year-to-date, MIME has declined -26.69%, versus a 2.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

More Resources for the Stocks in this Article