Will CYBR Stock Bounce Back after Its Q2 Results?

High-growth cybersecurity company CyberArk Software (CYBR) plans to announce its second-quarter results on August 7. Analysts expect CYBR to post revenues of $97.29 million with adjusted earnings per share of $0.47 in the second quarter.

In the second quarter of 2018, CyberArk reported sales of $77.71 million with EPS of $0.36. While CyberArk’s sales could rise 25.2%, its Q2 EPS could increase 30.6% year-over-year.

Notably, CyberArk’s second-quarter results remain critical for investors, as the stock has increased over 70.0% year-to-date. Plus, CYBR stock has traded at premium valuations and has a forward PE multiple of 49.7x. Its expected earnings growth is 5.3% in 2019 and 17.5% in 2020, indicating the stock’s overvalued status.

Investors remain concerned over CYBR’s lofty valuations and despite its stellar run in 2019, the stock has traded sideways since May. As a result, CyberArk’s gains this year primarily occurred in the first five months of 2019. Any earnings or revenue miss—or even weak guidance—could drive the stock significantly lower after its earnings. Today, CYBR stock fell about 5.0% as the trade war continues to escalate.

Among CyberArk’s peers, FireEye (FEYE), Palo Alto Networks (PANW), Fortinet (FTNT), and Check Point Software (CHKP) have returned -18.5%, 13.3%, 13.7%, and 6.1%, respectively, year-to-date.

Over the years, CyberArk has generated significant investor wealth. CYBR stock has returned 136.0% in the last three years and 318.0% since its IPO in September 2014 due to robust revenue and earnings growth. Notably, analysts expect CyberArk to almost double its sales from $217 million in 2016 to $419 million in 2019 for a compound annual growth rate of 24.5%.

Analysts now expect the company’s sales to increase 18.9% in 2020 and 19.0% in 2021. Plus, CYBR’s earnings growth is expected to decelerate to 11.0% annually in the next five years. In comparison, CYBR posted far higher growth of 26.0% in the last five years.

In our view, CyberArk could struggle to increase its profit margins in line with its sales, indicating low operating leverage. As a result, CyberArk investors could experience volatility going forward. Analysts expressed concern over a slowdown in tech spending, which could impact CyberArk’s sales.

Notably, the company gained traction in the cybersecurity market and claims to be a market leader in privileged access security. At the end of the first quarter, CYBR had served close to 5,000 clients, including 50% of Fortune 500 companies. However, a global economic slowdown and concerns over CyberArk’s high valuation could subdue investors’ enthusiasm.

Analysts have a 12-month average target price of $143.25 for CYBR, indicating an upside potential of 13% from the stock’s current price.