Proofpoint Is a 'Leading' Cloud Security Name, But Valuation Is Premium

While Proofpoint Inc PFPT is likely in “the early stages of its growth opportunity,” the stock does not fully reflect macro risks, DA Davidson’s Jack Andrews said in a report. He initiated coverage of the company with a Neutral rating and a price target of $80.

Proofpoint already has more than 4,000 customers and is a leader in the security market, providing cloud-based protection focused on messaging and data security for mid to large enterprises, analyst Andrews mentioned.

Growth Opportunity

“We believe PFPT is still in the early stages of its growth opportunity,” Andrews commented. Proofpoint has either met or exceeded expectations in every quarter after becoming a publicly traded company. More than 95 percent of the company’s revenue is recurring in nature, with renewal rates exceeding 90 percent.

“Only 27% of its customer base have adopted two PFPT products, and only 19% have more than three PFPT products, which leaves considerable room for cross-selling,” the analyst wrote. He expects the company to continue generating robust growth, with FY2016 revenue being projected at $363.8 million, up 37 percent y/y, and a non-GAAP EPS of $0.08.

Valuation

Proofpoint’s stock is trading at a premium valuation, with investors likely underappreciating macro risks.

Andrews further wrote, “We believe PFPT’s stock price is highly correlated to the overall macro investor sentiment for high-growth technology stocks. Thus, in our view, shareholders of PFPT are making a bet on the overall macro environment, whether they realize it or not.”

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