CyberArk Software Ltd

+1.19 (+0.84%)
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CyberArk Is One of a Kind and is Crushing It



CyberArk Software (CYBR) IPO'd in September of 2014 at $16 and is now trading nearly 300% higher. The company lives in the world of cyber security and the stock has a tendency to move rather abruptly on valuation calls and earnings announcements or forecasts. But there’s a lot more going on than reactive news, there’s growing business and remarkably strong fundamentals for such a young company that's growing so quickly and faced with peers that are haemorrhaging losses at the expense of growth. In fact, other than VASCO (VDSI), it's the only company in this space that has fundamental strength in every area.

The company claims 40% of the Fortune 100 and 17 of the world's top 20 banks are clients (Source: IBD). The company focuses its business on protecting companies from breaches that have made their way inside the network perimeter and gained insider privileges. It claims to be the only such company.

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➜ CYBR generates $1.30 in revenue for every $1 in expense, which is above the sector average of $1.07.

Revenue and earnings are rising and breaking all-time highs. Free cash flow is also rising (and positive), while the company continues steady investment in R&D. The company's operating margin (as noted above) is extremely high for any technology firm, and in particular one in the cyber security space that is in full blown growth mode. VASCO (VDSI) generates $1.32 in revenue for every $1 in expense, and that's the only company even close to CYBR.

The risk, beyond the ability to continue growing, is valuation. CYBR has a price to sales of 15 verses FTNT's 9, FEYE's 14 and VDSI's 3.5. I do note that Palo Alto Networks (PANW) actually has a higher price to sales. But, when we do a head-to-dead comparison of CYBR vs. FireEye (FEYE) and CYBR vs. Palo Alto Networks (PANW), the results aren't even close in terms of fundamental business strength. Here are the summary results of those two comparisons. You can compare any pair of companies with the head-to-head trade cards on

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Technicals   |   Support: 56.83   |   Resistance: 63.01   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

CYBR has a three bull (stock is range bound) technical rating because its trading above its 10- and 200-day moving averages, but below its 50- day moving average. We also note that the 10-day MA is below the 50-day MA ("swing death cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-08-11 $0.04 $34 million $34 million $33 million M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 119 71

Operating Margin (QTR) 1.30 1.01 1.04 RISING

Net Income (TTM US$ Millions) 15 5 RISING

Levered Free Cash Flow (TTM US$ Millions) 20

Research and Development (US$ Millions) 4 3 2 RISING

Research and Development Expense/Revenue 0.125 0.186 0.178 FALLING

Stock Returns and Chart

CYBR is down -2.3% over the last three months and up +62.0% over the last six months.

Before we dig into the fundamental trends that drive the rating, let's look at an all-time stock chart with 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 11971

CYBR went public with $66 million in revenue in the trailing-twelve-months. Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters. CYBR is not only growing revenue by 67% year-over-year, but it's 4.5 fundamental (star) rating implies that the revenue acceleration is pushing the core fundamentals of the company forward. While massive revenue growth often times comes at the expense of earnings, free cash flow and operating margins, that is not at all the case for CYBR. For the full year of 2011 (well before IPO), the company generated just over $36 million in revenue.

What do all these numbers mean?
CYBR's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Operating Revenues/Operating Expense 1.301.011.04RISING

Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter CYBR showed a ratio of 1.30. As we stated in the introduction, any kind of operating profit is unusual in this space for such a young company, but even beyond that low water mark, the company's operating margins are actually quite high for all of technology. I also note that the company has never reported an operating loss.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.01 so it's considerably higher as of today. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

CYBR's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) 155RISING

Net Income (after tax profit) over the trailing twelve months (TTM) for CYBR hit $15. The critical part of that number is that it's positive (profits!). That $14 million in TTM earnings is up 192% year-over-year. Granted, there's some small number math going on here, but that's still impressive as revenues rise, the company is not sacrificing earnings.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.

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Research and Development (US$ Millions) 432RISING

As a young company, R&D is going to be critical for success. Research and Development (US$ Millions) in the most recent quarter for CYBR was $4 million, up 27% from last year. Again, there i9s some very small number math here, but in any case, the firm is continuing stable and growing investment in R&D.

R&D per dollar of revenue for the latest quarter is $0.125. Last year this measure was $0.186 (it's falling).

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars and R&D per $1 of revenue in the gold line.

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CYBR is a remarkable firm. It's young, with a booming stock and booming revenue, yet that growth is not coming at the expense of earnings or free cash flow. The company continues to invest in R&D and has a wonderful list of clients as an imprimatur for future growth. The risks lie in three places: (1) Valuation, (2) Competition, and (3) the fickleness of banks. Note that banks have a tendency to make big purchases, then cancel them all at once and go to other providers. In many ways they are the worst customers in terms of loyalty, but pay big money when the decide on a company. CYBR claims 17 of the largest 20 banks as customers, so the risk there is not growth, but potential shrinkage.

In any case, CYBR has done what few cyber security companies have been able to do, and that's grow massively while always generating a profit. For a company this young, growing this fast, it's truly one of a kind.

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