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Why FireEye Stock Is Overvalued

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Peer comparison based on FireEye’s valuation metrics

On October 11, FireEye (FEYE) was trading at a forward EV-to-EBITDA multiple of ~26.1x as compared to the industry average of 8.1x, which indicates that the stock is trading at a huge premium as compared to its industry average. The company’s products are gradually becoming the first line of defense for many organizations, which is a positive for the company. Moreover, the higher adoption of the Helix interface, iSIGHT Intelligence, and the Mandiant service is further allowing analysts to remain bullish on FireEye stock.

Palo Alto Networks (PANW), Symantec (SYMC), and Fortinet (FTNT), which operate in the same industry, had forward EV-to-EBITDA multiples of ~22.5x, ~7.7x, and, ~22.4x, respectively.

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The graph above compares the EV-to-EBITDA multiple for FireEye, Palo Alto, Symantec, and Fortinet. On October 11, FireEye was trading at a forward EV-to-sales multiple of ~3.45x, which is lower than its trailing-12-month EV-to-sales multiple of ~3.8x. Likewise, on the same date, Palo Alto, Symantec, and Fortinet had forward EV-to-Sales multiples of ~6x, ~3x, and ~5.8x, respectively.

Short interest ratio

On October 11, FireEye stock’s short interest as a percentage of its shares outstanding (or short interest ratio) was ~11.2%. Generally, a stock’s short interest ratio that’s greater than 40% implies that investors and traders expect that the company’s stock will decline.

Historic stock return and market capitalization

YTD (year-to-date), FireEye stock gained nearly 13.9%. However, in the last five days, it fell by 4.2%. The decline in the stock price is mainly due to the rising US yield rates and the ongoing US-China trade war. The company’s market capitalization on October 11 was around $3.42 billion.

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