Mimecast, a Cybersecurity Stock for Today’s Threats and Tomorrow’s Gains

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Email is currently the primary form of business communication, especially during a pandemic that has forced a large percentage of the world to work from home. As coronavirus cases soar, that isn't likely to change anytime soon. 

Currently, 93% of security breaches target people, and 96% of them are through email. As of now, only 8% of IT security spending is on email, which provides a substantial growth opportunity for an email security software company like Mimecast (MIME).

MIME is the leading company protecting against email threats. Its core product is cloud-based software that addresses internet security threats that mainly cause email failure or downtime. It is known as the Mime and protects inbound and outbound email from malware, spam, threats.

The company derives revenue through subscription fees and sales to customers purchasing additional support. It currently has a customer base of over 38,000 organizations, which should continue to grow.

In its recent earnings report released last week, EPS came in at $0.32, compared to the consensus estimate of $0.20, and up an astonishing 146.2% year over year. MIME has beaten earnings estimates in five consecutive quarters. EPS is expected to grow 71.43 in the current quarter and 31.7% over the next few years.

The quarter's revenue was $122.7 million, an increase of 18.7% from the prior-year quarter. This was driven by strong free cash flow and EBITDA growth as MIME added approximately 500 new customers. MIME has a strong history of revenue growth, with sales up an average of 27.7% over the past three years. Sales are expected to grow 14.8% in the current quarter and 16.1% next year. 

Due to so many people working from home, there is an increased need for email protection. MIME has been evolving its platform to anticipate customer needs and the changing nature of cyber threats. Its holistic email and messaging Security 3.0 strategy and integrated suite of offerings give its customers an advantage in defending against new attacks.

MINE has expanded its product portfolio to over 12 products in its solution framework, versus only seven, five years ago. Their Zone 1 offerings include perimeter defenses and threat detection through secure email gateway and targeted threat protection or TTP platforms. 

Zone 2 consists of internal email protection and awareness training. Zone 3 includes their DMARC Analyzer and Brand Exploit Protection, which act as an offensive countermeasure that actively fights back against cyber threats. The company is seeing especially strong engagement with their Zone 2 and Zone 3 offerings.

MIME has been focused on winning new customers and selling them additional service through upsells. The company is also targeting large enterprises through partnerships to generate further growth. MIME recently joined CrowdStrike's (CRWD) Elevate Partner Program so that joint customers can leverage their security offerings.

The firm is also looking at market expansions in Central Europe, Canada, and the public sector for additional growth. In the most recent quarter, the company saw over 100% growth in its Central Europe market, making it their fastest-growing region. Management considers the public sector as a largely untapped market. 

MIME's Archiving service is the highest value service the company provides. It's what brings in the customers. In fact, the company was identified as a leader in Gartner's Magic Quadrant for Enterprise Information Archiving for the sixth year in a row.

The company has also implemented cost-cutting initiatives to help its bottom line, mainly through having workers work remotely, which is expected to drive real estate savings over the long-term. This provides cash for investing in R&D and other strategic growth initiatives.

The company also has a strong balance sheet with $231 million in cash and cash equivalents at the end of the quarter, compared to only $218 million in long-term debt. MIME also sports a healthy current ratio of 1.2 and a hefty gross margin of 74.9%.  

Analysts are high on this company, too, with seven out of eight analysts who cover the stock rating it as a "Buy." The average price target is $58.43, which would indicate a potential 33.7% upside from its current price. 

As trends shift toward cloud architecture for email security, the company is uniquely positioned to capture additional market share. Against a backdrop of favorable market drivers, the company is poised for robust growth for the foreseeable future. This makes MIME an enticing growth play as malware and security threats aren't going anywhere.

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MIME shares were trading at $43.87 per share on Thursday morning, up $0.16 (+0.37%). Year-to-date, MIME has gained 1.13%, versus a 12.18% rise in the benchmark S&P 500 index during the same period.

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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