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Proofpoint Stock Fell despite Earnings Beat

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Apr. 29 2019, Published 7:09 a.m. ET

Proofpoint sales rose 25% YoY in Q1 2019

Cybersecurity (HACK) company Proofpoint (PFPT) fell over 5% on April 26 to close trading at $124.55. The stock is currently trading 65% above its 52-week low of $75.92 and 5.2% below its 52-week high of $131.43.

Proofpoint announced its first-quarter results on April 25 and reported sales of $202.9 million, a rise of 25% YoY compared to sales of $162.5 million in the prior-year period. The company reported non-GAAP (generally accepted accounting principles) EPS of $0.40, a rise of 33% YoY.

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Analysts expected Proofpoint to post revenue of $199.3 million with EPS of $0.33 in the first quarter. While Proofpoint beat revenue estimates by 1.8%, it beat earnings by 21% in the first quarter.

So why did the stock fall despite the earnings beat and in-line guidance? Are investors concerned about the company’s slowing revenue growth? Or did the stock correct because it was overvalued?

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Is the stock overvalued?

Proofpoint stock fell 5.1% on April 26 despite the company beating Wall Street earnings and revenue estimates. The stock is trading at a forward 2019 PE multiple of 58.11x. In comparison, its earnings are estimated to rise by just 12.2% in 2019. The stock looks overvalued considering this multiple.

Further, Proofpoint stock is up over 48% this year (after the 5% fall) and was due for a correction. Peer Check Point (CHKP) also experienced a decline of over 9% in market value since it announced its quarterly results on April 15.

Proofpoint’s slowing revenue growth

Proofpoint is expected to grow revenue at a robust pace going forward. Sales are estimated to grow over 20% over the next two years. However, revenue growth has slowed down, as the above chart shows. The company’s sales growth is estimated to fall from 39% in 2018 to 22% in 2019.

Slowing revenue growth will also impact margin expansion. Wall Street estimates Proofpoint’s EPS to grow at a CAGR (compound annual growth rate) of 25% over the next five years, far lower than its growth of 87% in the last five years.

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