Commvault Stock: AI Cybersecurity Giant Ready to Double Again

Key Points

• Commvault is in rally mode and can double its share price again, but a correction is overdue.
• The market is overextended and divergent from MACD, suggesting a 5% to 20% decline is possible. 
• Analysts and institutions support this market, so investors should expect to see them buying on the dip. 

Commvault Systems NASDAQ: CVLT share price nearly doubled in the last nine months because of its utility and appeal for business. The company is a leading data protection and recovery service focused on fighting AI-driven threats. AI-powered threats are the most insidious of cyber threats because they can slip in undetected and wreak havoc across a network. Commvault’s products and services use AI to fight AI, providing quicker detection, response, and recovery of backed-up data. Because AI is in its earliest phases and cybersecurity is only going to become more necessary, Commvault should continue to see demand drive growth. 

Commvault Is in Rally Mode but Overdue for a Price Correction 

Commvault stock is in rally mode and can rise another 100%, but it is unlikely to do so in a straight line. The latest quarterly results catalyzed the market and sent it to a new high, but it is in a precarious position now and set up to correct. The price for CVLT shares is 2.5% above the 30-day EMA and more than 15% above the 150-day EMA, setting it up for a significant 10% to 20% fall that could come soon. 

The technical indications include overbought conditions and momentum divergences that suggest the market is overextended and weak at current levels. A move to lower price points would be healthy and allow the market to regroup for another push higher. The next catalyst for the market will be the FQ1 results due at the end of July. The analysts have trimmed their targets so the consensus aligns with the company guidance, which was cautious given the environment. 

The FQ4 results were solid and included strength on the top and bottom lines. The company grew 10% system-wide on a 27% gain in subscriptions, proving that the shift to the SaaS model is working. Subscriptions grew to nearly 54% of the revenue and are expected to continue taking share in FQ1 and the full year of fiscal 2025. The salient point is that the company is growing and widening its margins, driving sufficient cash flow and free cash flow to sustain and improve its balance sheet.

At the end of F2024, balance sheet highlights include a cash build, increased assets, reduced debt, and a 50% increase in shareholder equity. The company hasn’t paid a dividend yet but may in the future. Until then, it buys back shares and is building leverage for investors. The basic share count is down compared to last year and is expected to fall in fiscal 2025. The only downside is that dilution remains a risk; the company has ample shares to sell if needed, and there are convertible debts.

Insiders Sell, Institutions Buy Commvault

Insiders have been selling Commvault stock this year, but there are mitigating factors that make it a non-event. The insiders own a small 1% of the company, sales are related to share-based compensation, the insiders are selling into a strong rally, and the institutions are buying. Institutional activity more than offsets the insiders and has been net bullish for the last three quarters, aligning with the rally to new highs. Given an attractive opportunity, they own nearly 95% of the floating stock and may be expected to continue buying and ramp activity. 

Analysts are supporting the market, so any correction that comes will likely be shallow and short-lived, provided no change in the outlook. Analysts have lifted the sentiment to Moderate Buy from Hold in the last six months and increased the consensus price target reported by MarketBeat.com by 75%, 5% since the last report. The fresh targets lead to the high end of the expected range and include the new high of $140. KeyCorp set the $140 target in early July, implying a 15% upside for this market.