Is PFPT overvalued?
Proofpoint (PFPT) stock fell 7.5% in after-hours trading on April 25, 2019, despite the company’s 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 expected to rise just 12.2% in 2019.
The stock looks overvalued considering this multiple. Proofpoint stock had previously gained over 55% in market value this year and was due for a correction. Proofpoint’s peer Check Point Software Technologies (CHKP) has also experienced a fall of 9.4% in its market value since it announced its quarterly results on April 15.
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Has growth peaked for cybersecurity stocks?
Cybersecurity stocks have had a stellar run over the last few years. The ETFMG Prime Cyber Security ETF (HACK) has gained 66% since its inception in November 2014. Proofpoint and Check Point both saw their stocks fall after their first-quarter results. Were these only minor corrections, or do investors need to be careful with these stocks?
Proofpoint is expected to grow its revenue at a robust pace going forward. Its sales are expected to increase more than 20% over the next two years. However, its revenue growth has slowed, as we can see in the chart above. The company’s sales growth is expected to fall from 39% in 2018 to 22% in 2019.
Slowing revenue growth will also affect the company’s margin expansion. Analysts expect Proofpoint’s EPS to rise at a compound annual growth rate of 25% over the next five years, far lower than its growth of 87% over the last five years.