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dark stroke (LSE: DARK) stocks have experienced weakness recently. Less than six months ago, they were trading above 500p. However, nowadays, they can be purchased for around 260p.
Is now a good time to buy cybersecurity stocks for my portfolio? We’ll see.
$2 trillion market opportunity
One thing I like about Darktrace from an investment perspective is that it operates in a high growth industry. According to McKinsey, the damage caused by cyberattacks will amount to about $10.5 trillion annually by 2025, an increase of 300% over 2015 levels.
McKinsey analysts believe the total addressable market for cybersecurity companies could be worth as much as $2 trillion. So companies in this space are likely to have big tailwinds in the coming years.
Cyberattacks are proliferating, causing trillions of dollars worth of damage each year. The cybersecurity industry has an opportunity to step up and seize the opportunity.
McKinsey
Another thing I like about the company is that it is now profitable. For the year ending June 30, analysts expect the group to generate a net profit of $29.3 million. For the following year, they expect a net profit of $45.7 million.
Consistent profitability will allow investors like me to value the company more accurately. It should also reduce stock price volatility (stocks have been extremely volatile since they hit the market in 2021).
very high rating
However, the downside is that Darktrace shares are still very expensive. Earnings per share (EPS) is forecast to hit $3.88 this fiscal year. That puts the stock at a forward-looking price-earnings (P/E) ratio of around 83 right now.
The problem with such a high rating is that it leaves no room for error. This was demonstrated earlier this month.
On January 11, Darktrace lowered its revenue growth forecast for this fiscal year to 29-31.5%, down from its previous growth forecast of 31-34%. This development, which the company blamed on macroeconomic forces, sent shares tumbling nearly 20% to a record low.
The current macroeconomic environment is creating challenges in winning new customers, with prospects more reluctant to test products.
Cathy Graham, CFO of Darktrace
Another issue to note here is that brokers have been cutting their price targets for shares (significantly). For example, on January 12, Needham analysts lowered their price target from 622 pence to 330 pence. This type of negative activity from brokers could limit the rise in the stock price in the short term.
Finally, it is worth noting that Darktrace operates in a very competitive industry. Rivals include Palo Alto Networks, crowdstrikeY fortinet. He is going to have a lot of work to compete against these types of players.
my move now
All things considered, I’m happy to leave Darktrace’s stock on my watchlist for now. The company seems to have potential. However, right now, stocks seem too risky to me.
