Varonis Systems, Inc. (VRNS - Get Rating) in New York City is a data security and analytics provider. The company’s software products and services allow enterprises to manage, analyze, alert, and secure enterprise data. It is focused on protecting enterprise data, including sensitive files and emails; confidential customer, patient, and employee data; financial records; strategic and product plans; and other intellectual property.

VRNS’ revenue increased 29% year-over-year in its last reported quarter, beating analysts’ $95.98 million estimate. The company has forecasted its full-year revenue to be between $485 million and $490 million. The low end of the company’s revenue guidance for fiscal 2022 falls short of analysts’ $489.30 million estimate. This can be attributed to a write-off of its Russia business, which is expected to hamper its revenue and annual recurring revenues.

VRNS’ stock has declined 27.9% in price year-to-date and 26.7% over the past year to close the last trading session at $35.17. It is currently trading 52.1% below its 52-week high of $73.46, which it hit on Sept. 7, 2021.

Here is what could influence the performance of VRNS in the coming months:

Mixed Financials

VRNS’ total revenues increased 29% year-over-year to $96.26 million for the first quarter, ended March 31, 2022. The company’s subscription revenues increased 53% year-over-year to $68.98 million. Also, its non-GAAP operating loss increased 25.3% year-over-year to $7.89 million. In addition, its operating loss increased 41% year-over-year to $48.08 million.

Favorable Analyst Estimates

Analysts expect VRNS’ revenue for its fiscal 2022 and 2023 to increase 25.1% and 22.3%, respectively, year-over-year to $488.11 million and $596.72 million. Also, its earnings for its fiscal 2022 and 2023 are expected to increase 30.8% and 111.8%, respectively, year-over-year to $0.17 and $0.36 per share. It surpassed the Street’s EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward non-GAAP P/E, VRNS’ 203.22x is 968.5% higher than the 19.02x industry average. And its 74.46x forward EV/EBITDA is 491.4% higher than the 12.59x industry average. The stock’s 104.83x forward EV/EBIT is 555.8% higher than the 15.98x industry average.

Lower-than-industry Profitability

VRNS’ trailing-12-month net income margin is negative, versus the 5.44% industry average. And its trailing-12-month EBITDA margin is negative compared to the 13.35% industry average. Furthermore, the stock’s 0.39% trailing-12-month asset turnover ratio is 38.4% lower than the 0.64% industry average.

POWR Ratings Reflect Uncertainty

VRNS’ has an overall C rating, which equates to a Neutral 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. VRNS has a D grade for Stability, which is in sync with its 1.28 beta.

VRNS is ranked #14 out of 30 stocks in the F-rated Software – Security industry.

Click here to access VRNS’ ratings for Growth, Value, Momentum, Sentiment, and Quality.

Click here to check out our Software Industry Report for 2022

Bottom Line

Although VRNS’ EPS and revenue are expected to increase this year, the write-off of its Russia business might impact its revenue and annual recurring revenues. The stock is currently trading below its 50-day and 200-day moving averages of $40.65 and $49.68, respectively, indicating a downtrend. Furthermore, given its lower-than-industry profitability, mixed financials, and stretched valuation, we think it could be wise to wait for a better entry point in the stock.

How Does Varonis Systems, Inc. (VRNS) Stack Up Against its Peers?

While VRNS has an overall POWR Rating of C, one might want to consider investing in the following Software – Security stocks with a B (Buy) rating: Radware Ltd. (RDWR - Get Rating), Trend Micro Incorporated (TMICY - Get Rating), and OneSpan Inc. (OSPN - Get Rating).

Click here to checkout our Cybersecurity Industry Report for 2022

VRNS shares were trading at $34.20 per share on Friday afternoon, down $0.97 (-2.76%). Year-to-date, VRNS has declined -29.89%, versus a -13.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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