At This Price, IronNet (IRNT) Could Be a Multibagger

IronNet (IRNT), which went public through a reverse merger with LGL Systems Acquisition (DFNS), has fallen below its SPAC IPO price of $10. The stock has touched a high of $47.50 but currently trades near its 52-week low of $9.36. Why is IRNT stock falling, and is it a good buy now?

IRNT’s popularity in social media groups explains the stock's volatility—in the stock, Reddit traders triggered yet another short squeeze. While IronNet’s earnings were largely in line with expectations, markets became overly euphoric after the earnings release.

IRNT stock is falling because its price was out of sync with the company’s fundamentals. As is the case with other short squeezes, IronNet has pared its gains and is now near its price when its merger was completed. That said, it has fallen enough to look attractive.

Through its Collective Defense Platform, IronNet uses AI-driven behavioral analytics to detect cyber anomalies. The forecast for IRNT stock looks positive considering the cybersecurity market's growth potential amid the digital transformation. IRNT believes that its total addressable market will grow to $41.1 billion by 2024.

Wall Street analysts are also bullish on IRNT stock. Of three analysts polled by TipRanks, one rates IRNT as a "buy" and two recommend "hold." Their average target price of $28 implies a 178 percent upside in the next year, though that forecast should be taken with a grain of salt—analysts aren't always right, and this is the opinion of just three.

ARR (annual recurring revenue) makes up a large proportion of IronNet's sales mix. While its revenue in fiscal 2022's second quarter was only $6.1 million, it had ARR of $24.1 million. Its ARR was $19.5 million in the second quarter of fiscal 2021. Having high ARR is positive, as it provides revenue visibility and supports a company's valuation.

The company’s total customer count also more than doubled to 51 in Q2 2022, and the average contract length was 2.8 years. In fiscal 2022, IronNet expects to post revenue of $43 million–$45 million and ARR of $75 million.

With almost 105 million outstanding shares, IRNT stock trades at 14 times its fiscal 2022 projected ARR. Its valuation doesn’t seem too high considering its industry's fast growth. IronNet expects revenue of $287.4 million in fiscal 2025, which would mean a price-to-sales multiple of below 4x.

After its fall, IRNT stock looks like a good buy. The stock could be rewarding for long-term investors and is a good play in the cybersecurity industry.