Cybersecurity stocks haven’t been leaders since 2015, but some are starting to shape up. And if the group does get going, Proofpoint (PFPT) looks poised to be a leader, suggests growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.
The company has made a name for itself as a leader in email and social media-related cybersecurity, (though it’s expanding into many related hot spots) which is right where demand is spiking — in its quarterly threat report, the firm highlighted an 85% spike in email phishing scams and a huge 600% increase in malicious URLs.
The stock is set up well today because big investors are coming around to the view that, despite what looks like lots of competition from big players, Proofpoint is a few steps ahead of the field in terms of the results its products provide customers.
The general move to Office 365 and other cloud-based products is also providing a long-term tailwind in demand. In the third quarter, revenues rose 35%, billings were up 33% and earnings were up 32%, all topping expectations.
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Importantly, like many cloud providers, cash flow is much larger than earnings — free cash flow was around 71 cents per share in the quarter (compared to 25 cents of earnings), and the top brass expects free cash flow to total around $2.20 this year and around $3 per share in 2018.
Longer term, there’s plenty of opportunity for Proofpoint—just among its current customers, it has the potential to triple its recurring revenue over time, which is one of many reasons the company has an early projection of well over $5 of free cash flow in 2020. Fundamentally, there’s a lot to like here.
PFPT formed a very deep base during late-2015 and 2016 when the market had its troubles, then etched a tighter (but still sloppy) formation from last November through May of this year. Since then, the stock has really tightened up, generally hovering between $83 and $96 or so during the past five months.
Now shares are close to getting going, as the stock recently closed at new all-time highs on solid volume . It’s still hasn’t decisively broken out, but we’re OK with a small position here and adding on the way up.
