Darktrace Stock Down 16% in August – Time to Buy DARK Stock?
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The stock of British cybersecurity company Darktrace has gone down 16% so far this month as a result of a share offering that took place a few days ago for a total of 23.15 million stocks sold by multiple early investors including KKR Dark Aggregator, Balderton Capital SFI, and Hoxton Ventures Fund I Opportunities.
The placement was completed today at a price of 620p per share at a 19% discount from the stock’s 30 July closing price while 10% lower than the 4 August closing price – a day before the sale was announced.
Could this share sale be providing an opportunity to buy a promising up-and-coming cybersecurity firm at a lower valuation? The following article takes a look at the latest price action and the company’s fundamentals to possibly answer that question.
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Darktrace Stock – Technical Analysis
The price of Darktrace’s shares has been on a steady uptrend since the company went public back on 30 April this year, moving from 330p per share to a 52-week high of 787p on 21 July while the price has dropped to 642p this month as a result of this share sale.
Trading volumes today are elevated due to the high number of shares that have been exchanged as a result of this event but they have remained within the 10-day average in prior sessions.
Despite this monthly downtick, the stock’s lower trend line remains intact and buyers have shown up to pick up some shares at this discounted price. At the moment, the stock has slipped below its 20-day average while momentum oscillators have stepped off overbought levels already, with the MACD making a cross below the signal line as well.
Moving forward, the 590p level remains an important area of support for Darktrace while, due to the stock’s limited trading history, the fundamentals of the company might play a more important role in driving its valuation at the moment.
Darktrace Stock – Fundamental Analysis
Darktrace sales have been growing at a steady pace, moving from $79.4 million back in 2018 to $199.1 million by the end of 2020 at a compounded annual growth rate of 58.4%.
Meanwhile, the company reported in mid-July that it ended its 2021 fiscal year ended on 30 June with a total of 5,600 customers resulting in a 42% year-on-year growth while the management expects to see revenues landing at $278 million by the end of that period as well.
The company’s user base has also been growing steadily at a 50% CAGR, moving from 1,659 by the end of 2018 to the 5,600 forecasted for this year.
Darktrace’s indicated year-end revenue would result in a 40% jump compared to the top-line results reported by the firm last year while Darktrace should report another year of positive adjusted EBITDA following last year’s $8.9 million positive figure.
At a market capitalization of $6.63 billion, Darktrace is being valued at 18 times its forecasted sales for its 2022 fiscal year, which according to the management should land at around $367 million based on the upper bound of its forecasted growth rates for the period.
Even though this ratio seems fairly high, it pales in comparison to the forward P/S ratios assigned to US-based firms in this sector including CrowdStrike (CRWD) and Cloudflare (NET), both of which are displaying ratios of 40 and 52 respectively.
The cybersecurity sector is currently seen as a promising up-and-coming segment of the tech industry due to an increasing number of breaches and incidents that have affected prominent businesses and organizations around the world.
However, Darktrace’s top-line doesn’t seem to be growing at the pace that would justify this kind of elevated multiple and even though the firm is steadily advancing towards producing profits for its investors, it remains to be seen if its value proposition will remain competitive as the firm’s growth is decelerating based on the forecasted revenues for this next fiscal year.
For now, as a short-term play, Darktrace would be an appealing pick if the price action bounces off the lower trend line shown in the chart above. Meanwhile, if the price breaks below that line, chances are that this latest correction could gain more traction. If that happens, the next support to watch would be 595p, resulting in a total downside risk of 7% for Darktrace stock.
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