Cyberark Bull Concerned With Tough Comparisons, Growth Issues And Valuation

Shares of Cyberark lost nearly 10 percent on Tuesday after Tal Liani of Bank of America downgraded the stock to Neutral from Buy with a price target slashed to $48 from a previous $80. While the issue has regained slightly, at the time of this writing, it is selling down almost 8 percent at $41.29.

Liani, a former Cyberark bull, noted his downgrade is warranted given three key concerns: 1) high expectations and difficult comparisons in the coming quarters, 2) limited upside to the stock's current valuation (7.0x 2016E EV/S) and 3) concerns that a deceleration of growth could plague the company.

Related Link: Benzinga's Top Downgrades

Past Performance

Liani noted that Cyberark has "executed well" in the past as the company's revenue grew "substantially" since its IPO. Specifically, the company saw a 63 percent year-over-year increase in revenue during the first three quarters.

Liani continued that Cyberark's high gross margin licensing model and "disciplined" cost management led to a doubling of the company's earnings per share on a year-over-year basis for the first three quarters of 2015.

Sense Of Caution

The analyst acknowledged that while he doesn't see any signs of "weak performance," concerns over earnings in the coming quarters drove his "cautiousness." The analyst also noted that the entire sector is beginning to show "signs of fatigue."

Finally, Liani stated that his new $48 price target is based on a 7.5x 2016E EV/S multiple, which is equivalent to a 28x 2016E EV/FCF multiple – sitting at the high-end of the group average.