More than a half a billion dollars, that’s how much insiders sold of FireEye, Inc. (FEYE) since the company went public. FireEye is an award-winning cyber-security company with more than 10,000 customers, including more than 50% of the Forbes Global 2000.
Looking at the graph of transactions for the software company, it’s a constant stream of red, only varying in intensity, with a few out of place blue buys, until recently. (1) Since early June, a trio of insiders stopped the red run of selling.
In the last couple of months, Chief Operating Officer (COO) John Watters, Director Arthur Coviello, Jr. and Executive Vice President (EVP) and Chief Research Officer (CRO) William Robbins have purchased a combined 138,878 shares for a total of nearly $2.5 million.
Robbins is the most interesting case because he’s swung 180% degrees. Prior to his recent $439,868 investment, the two-titled FEYE executive sold and sold and sold: 15 uninterrupted sells for more than $7.7 million. (2)
Robbins and crew give us a pair of what we classify as insider buys with a purpose.
- Cluster Buy – two or more insiders buying at the same time
- Change of Heart – habitual seller turned buyer
Usually, insider buys tend to be company specific. In other words, something perceived as a big positive by internal team members. However, it’s important to note that cyber-security is a sector worth considering based on its growth potential.
According to Grand View research, “The global cyber security market size was valued at USD 167.13 billion in 2020 and is expected to register a CAGR of 10.9% from 2021 to 2028. The growth of the market can be attributed to the growing sophistication of cyberattacks.” Industry revenue by 2028 is forecasted to top $372 billion. (3)
General market potential and price appear to be the driving factors for the three FireEye executives. The stock recently got beat up a little, falling after unimpressive earnings, spinning off a division (4) and a rash of earnings/revenue downgrades. (5) Restructuring costs could hit their bottom-line for a little bit but sales are still projected to climb 20.6% next year. (6) The series of unfortunate events knocked FEYE from $20 and change to a little less than $17. Afterwards, Watters, Coviello, Jr. and Robbins opened their Apple pay apps.
Wall Street forecast a loss of $0.15 per share (EPS) for 2022 with sales of $578.43 million. Since EPS are expected to be underwater, investors need to look at topline metrics to get a general sense of where FEYE could trade in the next 12 to 18 months.
As we type, FireEye trades at 4.41 times sales (P/S) compared to 11.3 for its peer group. If FEYE continues to hold its current P/S valuation and hits 2022’s sales target, shares would trade at $10.66. On the other hand, at the industry average and next year’s revenue forecast, FireEye could hit $27.33. Analysts have a one-year price target of $21.41. (7) As we type, FEYE trades at $18.18 and the company does not pay a dividend at the moment.
Overall: FireEye, Inc. (FEYE) is a good sector play with cyber-security revenue expected to grow at 10%+ for the foreseeable future. However, there does appear to be some company specific risk with restructuring. Based on FEYE’s current and industry P/S ratios, the stock has similar upside and downside potential. The trio of insider buys suggest where they might see value in FireEye stock.
In our opinion, FireEye, Inc. (FEYE) is only appropriate for aggressive investors willing to accept well above average risk.
1 – https://www.secform4.com/insider-trading/1370880.htm
2 – https://www.secform4.com/insider-trading/1455951.htm
3 – https://www.grandviewresearch.com/industry-analysis/cyber-security-market
4 – https://www.fool.com/investing/2021/08/06/why-shares-of-fireeye-were-down-16-today/
5 – https://finance.yahoo.com/news/analysts-just-cut-fireeye-inc-072925093.html
6 – https://finance.yahoo.com/quote/FEYE/analysis?p=FEYE
7 – https://finance.yahoo.com/quote/FEYE?p=FEYE