E Varonis: A Cybersecurity Stock Set To Rally

Varonis Systems (VRNS) is an interesting name in data security and analytics. The company offers an interesting business model, with durable products that anyone can use. From a broader standpoint, the company's products are in a high demand niche. There is an increased demand for data protection & analytics solutions. In fact, the market is estimated to be $14-$20 billion.

We watched the name fall after reporting an earnings beat on the top and bottom lines, but offering somewhat murky guidance on a strategic shift toward a subscription model. Shares were under $53 at the time we pegged this trade, down 18%.

 

We looked to play this for a rebound, with $50 support.

Our first play

Target entry: $49-$52

Target exit: $59-$66

Stop loss: $45.50

Time frame: ~4-8 weeks

Options play: Sell either $50 or $45 puts to acquire shares at defined price or to collect premium

Remaining upside?

While the initial bounce has come, we see remaining upside to the top end of our target range, implying a remaining 13-15% upside in shares. This valuation target is conservative in our opinion given the breadth of the addressable market as well as performance of the name. The company is a sole leader in the industry and it has achieved consistent business growth in line with management expectations. It is constantly innovating and making smart investments in cloud expansion by offering clients products integration with office 365 and Azure, what makes a strong value proposition. Once the company scales its business with landing larger customers together with gradual margin improvement, it has a realistic chance to achieve the strategic goal of $1 billion in revenues, as well as solid cash generation.

If you look specifically at what the company offers, it has a single integrated solution, therefore it faces no direct competition as other companies don’t offer the same breadth of functionalities.

Source: Investor Relations

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Disclosure: BAD BEAT Investing is long VRNS

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