Global network attacks last weekend turned cybersecurity into a must-grab theme, boosting stocks like FireEye Inc (NASDAQ: FEYE ), Symantec Corporation (NASDAQ: SYMC ) and Check Point Software Technologies Ltd. (NASDAQ: CHKP ) straight past Wall Street's full-year targets overnight.
Monday's surge taught us that when traders have security on their minds, they'll pay about four times current revenue, practically across the board. That's well above what the analysts collectively think stocks like FEYE, SYMC and CHKP are worth!
So either the analysts need to step up, or these stocks have gotten ahead of themselves. I'm thinking the former better reflects reality. I've been saying as much for years! Corporations and governments need to tighten up about data security, and it looks like that day is finally here.
Cybersecurity Stocks' Day Has Come
In that scenario, we'll see a lot of money flowing into those companies as management teams shift toward deep enterprise applications and away from consumer-level virus protection.
Every chief technology officer who woke up scared Saturday morning feeds dollars to the top line, which Wall Street proved Monday can yield a four-fold multiple on market cap.
Play out all the math and it looks like the most bullish voices around this industry were also the best connected to reality. The world is increasingly engaged in a secret cyber war on all fronts as hackers - affiliated with governments, terror organizations, you name it - think they can act with impunity while conventional law enforcement lags.
If we see private enterprise step up to fill the gap, the bull scenarios could have FEYE back at $23, CHKP above $125 and SYMC at $40. That's where I think the rally goes from here.
Beyond that, budgets open up for emerging vendors. A company like Gigamon Inc (NYSE: GIMO ) may ultimately trade up to $47 if the contracts go the right way. Qualys Inc (NASDAQ: QLYS ) could actually justify its record pricing and even deliver added upside. But when the entire industry is on the move, start with the giants and work your way down. If you grab these stocks for appreciably less than 4X revenue, you're likely in the right place.
Hilary Kramer is the editor of GameChangers , Breakout Stocks , High Octane Trader , Absolute Capital Return and Value Authority . She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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