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Cybersecurity specialists FireEye (NASDAQ: FEYE) and CyberArk (NASDAQ: CYBR) both jumped recently in the wake of surprisingly strong third-quarter results. For FireEye, which has lost over 40% of its value in the last 12 months, the rally came as software billings beat low expectations. CyberArk, in contrast, popped after keeping its strong growth momentum intact.
So, which stock makes the better bet for investors right now? Let's take a closer look.
FireEye vs. CyberArk
Revenue and sales growth are over the last complete fiscal year. Data source: Yahoo! Finance and company financial filings.
Sales and profits
CyberArk dominates this match-up in terms of sales growth and profitability. Sure, the expansion pace is slowing, with sales up 39% over the last six months compared with a 56% surge last year. Yet its privileged-account security offerings are finding demand from IT departments around the world. In fact, last quarter's 37% sales uptick convinced management to boost its full-year forecast. "Our results demonstrate that companies of all sizes are choosing CyberArk as a strategic partner to help protect their most valuable assets on premise and in the cloud," CEO Udi Mokady told investors.
FireEye can also claim some good news on the sales front, given that revenue grew by 13% last quarter even though executives had predicted a smaller uptick. That's still well below the prior quarter's 19% gain, though, and isn't indicative of success at disrupting the cybersecurity market, as the company aims to do.
CyberArk also does a far better job at generating consistent profits. Despite its tiny size (just $161 million of revenue last year), CyberArk has been profitable in each of the last five fiscal years. In contrast, FireEye has generated widening losses over the last three years and is on track for another year of GAAP losses in 2016.
A key focus for FireEye's new management team (besides getting growth back on track) is slicing costs. The company has had good success in this endeavor so far, with operating expenses diving as a percentage of sales. FireEye was shelling out 135% of its revenue base as expenses two years ago and just over 100% one year ago. Now that number is down to a more manageable, but still too high, 88%. CEO Kevin Mandia is targeting reaching non-GAAP (adjusted) profitability by the final quarter of 2017, a year that is also projected to bring positive free cash flow to the business.
CyberArk can already claim healthy cash production given that it generated $36 million of cash over the last nine months. Looking ahead, executives see their position as the leader in privileged accounts protection providing long-term momentum as budgets shift toward data-center security spending and into its rapid detection and response segment. At the same time, management aims to double down on what it calls its "land and expand model" of building up customer contracts from small beginnings into deep, multimillion-dollar relationships.
FireEye is the far cheaper stock. Its valuation of three times sales represents a huge discount from the double-digit figure investors were paying just last year -- and is also well below CyberArk's price-to-sales ratio of nine.
The premium seems well worth it in my opinion, though, considering that you're looking at a much more profitable business whose growth pace, while slowing, is impressive. Investors who want to bet on a profit turnaround story can choose FireEye, but I'd prefer to own its smaller, more financially secure rival right now.
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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FireEye. The Motley Fool recommends CyberArk Software. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.