Darktrace Share Price Forecast November 2021 – Time to Buy DARK?

Shares of British-American information technology company Darktrace (LSE: DARK) are in the red today, closing at 499p as of November 23^rd (17:59 GMT). The shares hit an all-time high in September, surging 200% which was above its April IPO price. They have since fallen back, leading to many investors thinking that this is a great buying opportunity in the making.

Darktrace – Technical Analysis

According to the financial statement from Darktrace, the market cap of the cyber security company is at £355.654 billion with total assets worth £21.752 million. Revenue for 2020 was £15.81 million compared to £10.59 billion in 2019.

Moving averages for Darktrace are mostly indicating a sell action as evidenced by Exponential Moving Average (10)(550.6),  Simple Moving Average (10)(551.3), Exponential Moving Average (20)(608.6),  Simple Moving Average (20)(608.8) and Exponential Moving Average (30)(648.1). On the other hand, the majority of oscillators are neutral, such as Commodity Channel Index (20)(−117.3),  Average Directional Index (14)(35.8) and Awesome Oscillator(−194.0).

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Recent Developments

By leveraging AI technology, Darktrace focuses on cybersecurity. As we shift our activities online, the need for cybersecurity solutions only maximise. Darktrace has been experiencing increased demand for the last few years. While it had 1,659 customers in 2018, that number has grown to 5605 till June this year. While revenue growth in 2021 was only 41% compared to 158% in 2018, its 5-year compound annual growth rate is 75%.

However, Darktrace still has running an operating loss. While profits are normally ignored in tech investing, Darktrace is not that type of tech company. This is because its products and services do not have significant network effects. The products are also not truly plug–and–play and cannot be produced and sold at minimal variable costs, although the company’s gross margin suggests they can be.

With hundreds of billions of pounds are flowing into the sector every year on both sides, Darktrace is focusing on investing enough to stay ahead of the rest of the market. The unique nature of Darktrace’s products has resulted in some big-name corporations already signing up for the company’s protection services.

A major risk that Darktrace faces is with Mike Lynch, who is close to the company and is currently facing allegations of fraud by the US government. Mike Lynch is the founder of Autonomy, bought by HP in 2011. He founded Invoke Capital Partners which was also an early investor for Darktrace. Along with Invoke, Lynch has also helped Darktrace with managerial and technical support. Some of the senior Darktrace employees have also worked with Invoke and Autonomy. This has led the company to publicly acknowledge the risk associated with the case.

Should You Buy DARK Shares?

The ongoing legal proceedings compounded with other concerns have made investors unsure about the shares. Investors will now look forward to the completion of legal proceedings and the performance of its new cyber security solutions. Unfortunately, it is difficult to value the shares as long as Darktrace remains loss-making.

Investors can use the price-to-sales metric to evaluate Darktrace shares, which are selling at a Price-to-sales ratio of 13.5. Based on various estimates, the company can achieve sales of $513 million by 2023. It is possible that Darktrace’s IPO price was too low at around 250p. Investors who had bought the shares at this price have more than doubled their money in under seven months. It is also likely that Darktrace was overvalued at 10 pounds a share when it reported revenues of only $200 million. Considering this now is not the time to pick up DARK shares.

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