FireEye or CrowdStrike: Which Cybersecurity Stock is a Better Buy?

While remote working arrangements have allowed service industries to remain operational during the current COVID-19 pandemic, concerns regarding cybersecurity have seen a manifold increase lately. With money more people now working remotely with sensitive company information through unsecured access points and connections, businesses worldwide have had to adopt additional security measures to prevent disclosure or theft of sensitive information. According to Cybersecurity Ventures, the cost of cybercrime related incursions is expected to hit  $6.10 trillion by 2021.  It adds that 68% of business leaders are concerned about increasing risks here.

The recently discovered spyware attack on the U.S. government, which has been deemed the worse such attack it has suffered ever, has validated the concerns of organizations in this regard. With sensitive information from the U.S. treasury and more than 40 other federal departments and companies at risk, the need for proper cyber security is now higher than ever.

With one of the largest cybersecurity firms SolarWinds Corp (SWI) suffering the brunt of the attack, competitors like CrowdStrike Holdings, Inc. (CRWD) and FireEye, Inc. (FEYE) may have an opportunity to capitalize on the situation and capture more market share.

CRWD has gained 354.4% over the past year, while FEYE returned 36.9% over this period. In terms of past six-month performance, CRWD is the clear winner with 114.2% gains versus FEYE’s 76.8% returns. However, FEYE has gained 69.6% over the past three months, outperforming CRWD’s 57.6% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

CRWD has a long-standing partnership with Amazon. Inc.’s (AMZN) Amazon Web Services (AWS). Earlier in November, CRWD became a launch partner for AWS’ network firewall, providing protection for all AWS’ virtual private clouds. CRWD launched its services on AWS marketplace in December to provide contact cybersecurity services to customers through the platform.

CRWD released a new security module, Falcon X Recon. in October, which provides a higher level of situational awareness to users. This allows users to steer clear of malicious websites and receive immediate notifications regarding any breach of security.

FEYE discovered the breach in SWI’s security system while experiencing its own hack earlier this month. This probe allowed FEYE to crack down on one of the largest security breaches in history in that the U.S. government and major Fortune 500 companies, which are clients of SWI, were attacked also.

FEYE sold an equity stake consisting of 400,000 convertible shares to Blackstone this month. The sale raised $400 million this.

The company acquired Respond Software on November 18 for $186 million in cash and stock. This acquisition could help the company scale its services while delivering detection and response facilities to customers.

Recent Financial Results

CRWD’s revenues have increased 86% year-over-year to $232.50 million in the fiscal third quarter ended October 31, 2020. This can be attributed to an 87% year-over-year increase in subscription revenues over this period. Its annual recurring revenue has risen 81% from its year-ago value to $907.40 million, while gross profit grew 94.8% from the same period last year to $170.93 million.

FEYE’s revenues have increased 6% year-over-year to a record $238 million in the third quarter ended September 30, 2020. Its gross profit grew 5% from the prior year quarter to $154.05 million, while non-GAAP EPS rose 450% from the year-ago value to $0.11.

Past and Expected Financial Results

CRWD’s revenue increased 85.9% year-over-year, while FEYE’s revenue rose 6.5% year-over-year.

Analysts expect CRWD’s EPS to rise 500% in the current quarter, 152.4% in the current year, and 59.1% next year. Furthermore, the company’s EPS is expected to rise at a rate of 25% per annum over the next five years. Consensus revenue estimates indicate a 63.9% rise in the current quarter, 78.5% increase in the current year, and 40.4% improvement.

FEYE’s EPS is expected to increase 42.9% in the current quarter, 480% in the current year, 20.7% next year, and at a rate of 91.3% per annum over the next five years. Analysts expect the company’s revenue to increase 2% in the current quarter, 5% in the current year, and 5.8% next year.

Both CRWD and FEYE have impressive earnings surprise histories. While FEYE beat the Street EPS estimates in each of the trailing four quarters, CRWD matched consensus estimates in one.

Profitability

FEYE’s trailing 12-month revenue is 1.22 times CRWD’s. However, CRWD is more profitable, with a gross margin of 72.9% compared to FEYE’s 64.7%. Also, CRWD’s leveraged free-cash-flow margin of 40.2% is higher than FEYE’s 11.9%.

Valuation

In terms of trailing 12-month Price/Sales, CRWD is currently trading at 63.30x, 1,094.3% more expensive than FEYE, which is currently trading at 5.30x. CRWD is also more expensive in terms of trailing 12-month EV/Sales (64x versus 5.55x) and trailing 12-month Price/ Cash flow (161.46x versus 80.32x).

POWR Ratings

CRWD is rated “strong Buy” in our proprietary POWR Rating system, while FEYE is rated “Buy”. Here are how the four components of overall POWR Ratings are graded for both these stocks:

CRWD has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank.

FEYE has an “A” for Buy & Hold Grade and Industry Rank, “B” for Trade Grade, and “D” for Peer Grade. In the 24-stock stock Software – Security industry, FEYE is ranked #14.

The Winner

FEYE was the first responder in the nationwide security hack; it alerted SWI regarding potential cybercrime. However, FEYE itself was a target in the biggest cybercrime in U.S. history, which resulted in confidential information regarding the U.S. government being leaked and the company’s proprietary Red Team tools being stolen. The stock declined 13.6% within six of the news of the breach going public.

CRWD has strengthened its security services and firewall through collaboration with one of the largest cloud computing services companies in the world, as well as launching upgraded products and services to tackle the rampant hacking problems. Though it is relatively more expensive compared to FEYE, CRWD’s higher profitability, increasing earnings and revenue-growth potential, and its comprehensive product and service pipeline compensates investors for its higher valuation.

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CRWD shares fell $0.52 (-0.23%) in after-hours trading Wednesday. Year-to-date, CRWD has gained 348.17%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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