FireEye (NASDAQ:FEYE) A Risky Proposition in a Field Built on Risk

With the current push for work-from-home, as well as a lot more demand overall for at-home applications—shop, play, watch...nearly any verb you care to add might qualify—it would be easy to think that cybersecurity operations could nearly write their own ticket at this stage. Sadly, not all cybersecurity operations are created equal, and some of them are a little more risky than others. One such example is FireEye Inc (NASDAQ:FEYE), which has quite a bit going for it, but with some downsides as well.

Protecting the Internet Lanes From Cybercriminals

There's good news out about FireEye, and some of it comes direct from our own research on the company. For instance, back in August, we found that projections on FireEye's quarterly sales figures were in a fairly tight range between $226 million and $228 million. That compared nicely against the same quarter in 2019, where sales were $225.91 million. Earnings won't be reported next until November 3, so that's a point to watch.

There's also some good news in its general consensus rating. Right now, the stock has an average rating of “hold” by the 20 analysts currently covering the firm. It doesn't take too much of a contrarian to buy on a hold, so getting in now may not be a bad plan. Plus, the company's overall valuation is fairly low; reports of a couple weeks ago noted that the company has a market cap of $3.3 billion, which is running about 3.6 times expected sales for the year, and 57.5 times expected earnings. For a stock trading currently at $12.49, that's not particularly bad at all.

Better yet, that average rating is weighted pretty well toward buying. While nine analysts have a “hold” rating out, another nine have a “buy” rating out. Just a little shift in sentiment is enough to tip the scale on this one and potentially trigger a new rush of buyers. Some actually have made more positive valuation shifts recently; Piper Sandler has a “neutral” rating on the company right now, but boosted its price target from $12 to $15. Bank of America also may have kept its “neutral” rating in place, but also increased its price target, from $14 to $15.50. Barclays did likewise, holding an “equal weight” rating, but upping the price target from $12 all the way to $17.

A Padlock Versus a Vault Door

However, there are some drawbacks to the company that need to be kept in mind going forward. Our own research spotted one such point just recently; while the “buy” and “hold” ratings stand fairly equal, one analyst, BidaskClub, downgraded its rating recently from “sell” to “strong sell.” If that's representative of overall market sentiment, getting that little shift from “hold” to “buy” may be more challenging than some may expect. ValuEngine recently cut its rating as well from “buy” to “hold,” joining potentially negative shifts.

There was also some potentially jarring news as, just a couple weeks ago, the company slipped below its 200-day moving average. It's currently trading in the middle of its 52-week range, which suggests the company is volatile but with a potential for upside and downside almost equally.

There's also risk to note in the company's debt numbers. As of June 2020, the company was carrying around $938.5 million in debt, which was down somewhat from earlier totals of $986.3 million. The company also had a cash reserve of $914.2 million, which left its net debt around $24.3 million.

Some Security Options are Just Better Than Others

So what do we take away from all these data points? Risk. FireEye works in both detecting and preventing major cyber attacks, which should make it an attractive proposition for companies who have to do more online these days, much like we're all doing.

FireEye should be writing its own ticket right now. Between the increased demand for internet-based options for the end user and the always-high demand for protective measures for corporations in the face of threats like ransomware and data breaches, it's not like the market itself is in the doldrums. That would be one thing; you can potentially shrug off a down market by offering a better product and drawing what interest there is in your direction. But this is a market where cybersecurity tools should be selling briskly, and FireEye isn't benefiting from this clearly up market where companies like Zscaler (NASDAQ:ZS) are.

There's a case to be made for picking up some of this stock. It's inexpensive and it has some significant upside potential. However, there's also a lot weighing this stock down, so consider carefully before you make a purchase here. A flier might be rewarded, but losses seem an equally likely outcome.